UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X}Annual Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act
of 1934 (Fee Required)
For the fiscal year ended December 31, 1996
or
{ }Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from ............... to ...............
Commission file number 0-19066
INSIGNIA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3591193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No. 1)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (864) 239-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Class A Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. {X}
As of February 28, 1997 there were outstanding 28,983,777 shares of Class A
Common Stock. Based on the closing price of $21.25 per share of Class A Common
Stock as of such date, the aggregate market value of Registrant's Shares held by
non- affiliates was approximately $433 million.
DOCUMENTS INCORPORATION BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders to be held on April 30,
1997 in Part III of this Form 10-K.
<PAGE>
Part I
Item 1. Business
General. Insignia Financial Group, Inc. (the "Company" or "Insignia") is a
Delaware corporation incorporated in July 1990. The Company is a fully
integrated real estate services organization specializing in the ownership and
operation of securitized real estate assets. As the largest manager of
multifamily residential properties in the United States and one of the largest
managers of commercial properties, Insignia performs property management, asset
management, investor services, partnership accounting, real estate investment
banking, and real estate brokerage services for various types of property
owners, including approximately 900 limited partnerships having approximately
360,000 limited partners. Insignia commenced operations in December 1990 and
since then has grown to provide property and/or asset management services for
over 2,400 properties, which include approximately 265,000 residential units
(including cooperative and condominium units) and approximately 110 million
square feet of commercial space, located in over 500 cities in 48 states.
Insignia's principal business strategy is to expand its real estate
services business in four primary ways. First, the Company seeks to acquire, or
to have an affiliate acquire, controlling positions in entities that own or
control real estate properties, and then, subject to their fiduciary duties to
such entities, engage Insignia to provide management services. Second, Insignia
seeks to enter into special contractual relationships with non-affiliated third
parties that own or control portfolios of real estate properties pursuant to
which Insignia will provide management services to some or all of the properties
within their portfolios. Third, the Company seeks to expand its management of
properties which are owned by non-affiliated third parties, such as large
insurance companies, banks, government or quasi-government agencies, and other
institutional investors and lenders. Fourth, Insignia seeks to make
opportunistic real estate investments in controlled entities, primarily through
Insignia Properties Trust and Insignia Properties, L.P., its controlled UPREIT,
or through institutional co-investments for both real estate cash flows and
profits and additional service revenues.
Insignia's real estate interests consist primarily of limited partner
interests in controlled partnerships which own apartment complexes. Insignia
began making such investments in December 1994 in connection with the ConCap
acquisition, and has since acquired additional interests through tender offers,
negotiated block purchases and secondary market purchases. In addition, in
January 1996 Insignia acquired NPI, which included a substantial investment in
limited partner interests.
In January 1997, Insignia reorganized its operations from six units to four
units to achieve greater operating efficiencies and separate its real estate
investment activities. Insignia's operating units now include Insignia
Residential Group ("IRG"), Insignia Commercial Group ("ICG") and Insignia
Financial Services ("IFS"), through which the Company performs its various
services. IRG and ICG provide management, consulting, brokerage, investment and
related services for residential and commercial properties, respectively. IFS
provides financial services including real estate investment banking and
co-investment.
The Company formed Insignia Properties Trust ("IPT") and Insignia
Properties, L.P. ("IPLP") which together comprise an umbrella partnership real
estate investment trust as its fourth unit. IPT and IPLP are expected to
function as the Company's primary vehicles for acquiring and owning interests in
multifamily real estate assets. Insignia and certain of its affiliates have
initially contributed to IPT virtually 100% of the limited partnership interests
acquired by Insignia over the course of the past 24 months, as well as the stock
of the corporate the general partnerships in those partnerships in which
Insignia has acquired limited partnership interests. Insignia will initially own
virtually 100% of the stock in IPT, with IPT owning 100% of the general
partnership interest in IPLP. Over time, Insignia expects to diversify the
ownership base of IPT and grow this segment without significant recourse to
Insignia.
In November 1996, Insignia Financing I, a Delaware trust (the "Trust"),
issued and sold 2,990,000 shares of its Convertible Preferred Securities (the
"Preferred Securities") with an aggregate liquidation amount of $149,500,000,
sold to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act of 1933, as amended (the "Act")) in compliance with Rule 144A, to
foreign investors pursuant to Regulation S under the Act
<PAGE>
and to institutional accredited investors pursuant to Regulation D. All of the
outstanding common shares of the Trust are owned by the Company. The Preferred
Securities will mature on September 30, 2016 and bear interest at the rate of
6.5% per annum, with quarterly distributions payable in arrears. The Company has
the option to defer interest payments from time to time, not to exceed 20
consecutive quarters. The Company's first distribution of $1.6 million was made
on December 31, 1996, and is reflected in minority interests in the consolidated
statements. The Preferred Securities are convertible into the Company's Class A
Common Stock at $26.50 per share through September 30, 2016. The Company has the
right to redeem the Preferred Securities after November 1, 1999. The Preferred
Securities are structured such that the dividend is tax deductible to the
Company. The proceeds of the offering were used to pay down current debt under
the Company's $200,000,000 revolving credit facility.
Insignia and its affiliates have acquired control of, or management rights
to, 33 portfolios of properties since 1990. The Company believes that there are
a significant number of other portfolios which may be available for future
acquisitions. However, there can be no assurance that the closing of any such
potential acquisitions will be consummated. The following table summarizes the
portfolio acquisitions completed in 1996, 1995 and 1994 only, and their size in
units and commercial square feet.
<TABLE>
<CAPTION>
Commercial
Residential Units Square Feet
Year Contractually Third Contractually Third
of Affiliated Restricted Party Affiliated Restricted Party
Acquisition Portfolio Name Properties(2) Properties(3) Properties(4) Properties(2) Properties(3) Properties(4)
<S> <C> <C> <C> <C> <C> <C> <C>
1996 GSSW(1)............. 5,710
1996 Edward S. Gordon Company, Inc. 25,500,000
1996 Paragon............. 21,800,000
1996 National Property
Investors, Inc..... 34,265 3,735 3,885,000
1995 Propsys/Compass Ventures 565 138
1995 Douglas Elliman-Gibbons &
Ives/Kreisel Company, Inc. 54,301
1995 Gleichman & Company, Inc. 1,500
1995 O'Donnell Property Services 3,496,330 20,102,461
1994 ConCap Entities..... 15,049 2,776 2,092,890
1994 Capital Realty, Group, Inc. 1,565 5,512 2,177,439
1994 Allegiance Realty Group, Inc. 52,738 7,631,339 8,326,458
1994 Continental......... 425,000
1994 The Rooney Company 544 2,700,555
1994 Hampton Real Estate Group 1,167 357,690
1994 SHL Properties Acquisition
Partners, Ltd...... 2,486 413 634,000
1994 GSSW................ 1,451
1994 Gross Lancton & Co. 3,233,151
<FN>
(1) The GSSW acquisition added additional affiliated management contracts as
well as the general partner interest on third party properties acquired in
1994.
(2) Affiliated properties are ones in which some form of general partner
interest resides with the Company or an affiliate.
(3) Contractually restricted properties are ones in which the general partner
interest has not been relinquished to Insignia or an affiliate, but ones in
which restrictions and protection clauses have been put in the management
agreements to strengthen the stability of the relationship.
(4) Third party properties are ones in which no control exists, and the
contracts on the properties are cancelable at the option of either party.
</FN>
</TABLE>
The Company's services include property management, providing all of the
day-to-day services necessary to operate a property, whether residential or
commercial; tenant representation; corporate real estate consulting; asset
management, including long-term financial planning, monitoring and implementing
capital improvement plans, and development and execution of refinancings and
dispositions; maintenance and construction services; marketing and advertising;
investor reporting and accounting, including preparation of quarterly reports
and annual K-1 tax reporting forms for limited partners, as well as, regular
reporting under the Securities Exchange Act of 1934 where applicable; investment
banking, including assistance in workouts and restructurings, mergers and
acquisitions, debt and equity securitizations, and acquisitions of limited
partner interests; and real estate brokerage.
<PAGE>
The Company's senior residential property management personnel have an
average of over 20 years of experience in property management with a broad range
of types of properties throughout the United States. Many of Insignia's most
experienced managers joined the Company in connection with certain of its
acquisitions. The Company believes that its management expertise and
state-of-the-art computer and communications systems allow it to offer its
customized services efficiently and at a cost to the Company that permits it to
be competitive with other real estate management service companies.
The U.S. Department of Housing and Urban Development ("HUD") has approved
Insignia to provide property management services for certain properties subject
to regulations by HUD. Approximately 16% of the residential units managed by the
Company are housing projects financed under various government programs
administered by HUD. As a result, certain aspects of Insignia operations are
subject to regulation by HUD. The programs administered by HUD are currently
under review by Congress. The proposed changes to the HUD programs would allow
tenants greater freedom in the selection of rental housing. The tenant can take
this "rent voucher" and apply for lease at an apartment he selects.
Additionally, the rental vouchers may provide for less assistance than is
currently in place. It is possible that the combination of these proposed
changes could result in lower rental revenue and project cash flow from which
management and other fees are derived; however, the current proposals are not
sufficiently specific to determine their actual impact on such fees, if any.
Competition. Competition is intense in the markets for acquisition of
control of real estate entities and the rights to manage the controlled
properties, as well as for management of third-party owner properties.
Insignia's competitors for residential property management include major
organizations such as NHP, Incorporated of Washington, D.C. and Lincoln Property
Company of Dallas, Texas. Competitors in the commercial property real estate
business include CB Commercial Real Estate Group of Los Angeles, California, and
Koll Management Services, Inc. of Newport Beach, California. Despite the large
size of these and other competitors, the industry is highly fragmented and no
single organization controls or manages more than a small percentage of the
residential or commercial properties in the United States. Most competitors are
regional or local organizations that manage a relatively small number of
properties.
Insignia believes that competition for acquisition of control of real
estate entities is based principally on the ability to offer reasonable value to
the seller of control, often restructuring the debt and equity of the controlled
entity to allow the properties to provide positive cash flow to investors.
Insignia believes its financial strength, together with its ability to evaluate
and close acquisitions quickly and effectively using its in-house capabilities,
its record of successful property real estate services, and its low cost
structure, provide credibility in negotiating such restructuring, and complement
its ability to offer attractive terms to the seller. Insignia believes that its
track record of having successfully completed 33 acquisitions since its
inception gives it a competitive advantage in obtaining attractive acquisitions.
Competition for third party management contracts is based principally on
quality of service, including the ability to enhance asset values, and cost.
Unlike many of its competitors, Insignia's personnel are experienced in managing
a wide variety of types of properties in locations throughout the country. This
enables Insignia to offer an owner of a large diversified portfolio the ability
to obtain experienced management for most or all of its properties through one
organization. Insignia believes it has demonstrated an ability to effectively
manage, lease, and improve the value of, both residential and commercial
properties. In addition, Insignia believes it has developed a reputation for
quality service and attention to clients, investors, and tenants alike. Insignia
also believes its economies of scale and state-of-the-art management information
system allow it to offer its services efficiently and at an overall cost which
is competitive with or less expensive than is offered by other management
service companies. However, while Insignia creates significant savings through
its substantial purchasing power, and is able to offer certain cost reimbursed
services (such as partnership administration) so that overall expenses are lower
than those of Insignia's competitors, Insignia believes its principal
competitive advantages are the experience of its management and the efficiency
and flexibility of its management information systems. As a result, Insignia
believes it has competed effectively in the market for provision of real estate
services to third party entities. This segment of the business has grown since
inception, although there can be no assurance it can continue to do so.
<PAGE>
Affiliated Entities. Metropolitan Asset Enhancement, L.P. ("MAE") was
formed prior to 1991 to be the principal vehicle for acquiring general partner
interests in limited partnerships owning real estate and real estate related
assets that would be managed or serviced by the Company. Insignia holds a 19.1%
limited partnership interest in MAE. Andrew L. Farkas, the Chairman of the
Board, President and Chief Executive Officer of Insignia, owns the general
partner of MAE, which has a 1% partnership interest. In August 1993, the Company
entered into an agreement with MAE whereby (i) the Company agreed to assist MAE
as its advisor and agent in connection with MAE's acquisition, asset management,
property management, and securitization activities and in connection therewith
to perform all services relating to the foregoing, (ii) the Company agreed to
render to MAE full investment banking, financial advisory, recapitalization,
asset restructuring, securitization and mortgage banking services (as sole
compensation for the provision of such services, the Company receives certain
cost reimbursements, incentive management fees, and transaction fees as defined
in such agreement), and (iii) the Company and MAE agreed that, in the event
either obtains an opportunity to acquire interests in real estate or in entities
which own or control real estate, the Company will have the first right to
acquire such interests. If the Company elects not to acquire any such interests,
but MAE does elect to acquire such interests and the Company elects to provide
any financing to MAE for such acquisition, then such financing shall be by means
of loans that will bear interest at a rate equal to the rate then paid by the
Company on indebtedness under a revolving credit facility. If the Company is not
a party to a revolving credit facility, such rate will be the estimated rate the
Company would pay on indebtedness incurred under a revolving credit facility.
Environmental Regulation. Under various federal and state environmental
laws and regulations, a current or previous owner or operator of real estate may
be required to investigate and remediate certain hazardous or toxic substances
or petroleum product releases at the property, and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The presence of contamination or the failure
to remediate contamination may adversely affect the owner's ability to sell or
lease real estate or to borrow using the real estate as collateral. The owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the site.
There can be no assurance that Insignia, or any assets owned or controlled by
Insignia, currently are in compliance with all of such laws and regulations, or
that Insignia will not become subject to liabilities that arise in whole or in
part out of any such laws, rules, or regulations. Moreover, there can be no
assurance that any of such liabilities to which Insignia may become subject will
not have a material adverse effect upon the business or financial condition of
Insignia.
Employees. At December 31, 1996, Insignia had approximately 9,300
employees. Of these employees, approximately 75% were employed as on-site
personnel such as resident managers and maintenance people involved in property
management. Fewer than 4% of such employees are covered by collective bargaining
agreements. Approximately 89% of Insignia's employees are full time; part-time
employees include those employed as housekeepers, porters, pool staff, lawn
maintenance, and other service positions at site locations. Insignia believes
that its employee relations are excellent. The Company's benefit programs
include group comprehensive health and life insurance plans, paid vacations, a
sick leave program, a disability plan, and a 401(k) plan.
Executive Officers
The following sets forth the names and ages of all persons currently
serving as executive officers of the Company, their positions with the Company
and their period of service as an executive officer of the Company. Each person
serves until his successor is elected or appointed by the Board of Directors.
<PAGE>
<TABLE>
<CAPTION>
Beginning Year of
Service as
Name Age Office Executive Officer
<S> <C> <C> <C>
Andrew L. Farkas 36 Chairman of the Board of Directors, President and 1990
Chief Executive Officer of Insignia and Chairman
of the Board of Trustees of Insignia Properties Trust
James A. Aston 44 Office of the Chairman, Chief Financial Officer of 1991
Insignia and President, Insignia Properties Trust
Frank M. Garrison 42 Executive Managing Director and President, 1993
Insignia Financial Services Division of Insignia
and Executive Managing Director of Insignia
Properties Trust
Jeffrey L. Goldberg 35 Managing Director - Investment Banking 1991
Edward S. Gordon 61 Office of the Chairman, Chairman of Insignia/ESG 1996
Albert H. Gossett 49 Senior Vice President and Chief Information Officer 1991
Henry Horowitz 50 Executive Managing Director and Chief Operating 1993
Officer, Insignia Commercial Group, Inc.
William H.
Jarrard, Jr. 50 Managing Director - Partnership Administration 1991
of Insignia and Vice President and Director of
Operations of Insignia Properties Trust
Neil J. Kreisel 51 Executive Managing Director and President, 1995
Insignia Residential Group
John K. Lines 37 General Counsel and Secretary of Insignia and Vice
President and Secretary of Insignia Properties Trust 1994
Martha L. Long 37 Senior Vice President - Finance and Controller 1996
Stephen C.
Schoenbaechler 44 Senior Vice President - Asset Management 1995
Thomas R. Shuler 51 Executive Managing Director and Chief Operating 1991
Officer of Insignia Residential Group
Stephen B. Siegel 52 Executive Managing Director and President, 1996
Insignia Commercial Group, Inc., President of Insignia/ESG
Ronald Uretta 41 Chief Operating Officer and Treasurer of Insignia and
Vice President and Treasurer of Insignia Properties Trust 1992
</TABLE>
Andrew L. Farkas has been a director of Insignia since its inception in
July 1990, has been Chairman and Chief Executive Officer of Insignia since
January 1991, and has been President since May 1995. Prior to August 1993, Mr.
Farkas was the sole director of Insignia. He has been Chairman of the Board of
Trustees of Insignia Properties Trust since December 1996.
James A. Aston has been Executive Managing Director of Investment Banking
of Insignia since January 1991 to July 1994, with the Office of the Chairman
since July 1994, and Chief Financial Officer since August 1996. He became
President of Insignia Properties Trust in December 1996.
Frank M. Garrison has been Executive Managing Director of Insignia and
President of Insignia Financial Services, a division of the Company, since July
1994. Mr. Garrison became Executive Managing Director of Insignia Properties
Trust in December 1996. Between January 1993 and July 1994, Mr. Garrison was
Managing Director of Investment Banking. From January 1992 to December 1992, Mr.
Garrison was Vice President - Investment Banking of Insignia.
Jeffrey L. Goldberg has been Managing Director of Investment Banking of
Insignia since July 1994 and served as Managing Director of Asset Management of
Insignia from January 1991 until July 1994.
Edward S. Gordon has been with the Office of the Chairman of the Company
since July 1996. He is the founder and was Chairman of the Edward S. Gordon
Company, Incorporated ("ESG"), a commercial property
<PAGE>
management and brokerage firm whose assets were acquired by the Company in June
1996. The Insignia Commercial Group reports to Mr. Gordon.
Albert H. Gossett has been Vice President and Chief Information Officer of
Insignia since January 1991 and Senior Vice President and Chief Information
Officer of Insignia since July 1994.
Henry Horowitz has been Executive Managing Director of Insignia Commercial
Group, Inc. since January 1993, and was Executive Managing Director and
President since June 1994. He was promoted to Chief Operating Officer of the
Group in January 1997 with the merger of Insignia Commercial Group, Inc. with
ESG. From January 1987 to January 1993, Mr. Horowitz was the Chief Executive
Officer of First Resource Realty, Inc., a commercial property management
organization which Insignia acquired in January 1993.
William H. Jarrard, Jr. became Vice President and Director of Operations
for Insignia Properties Trust in December 1996. Mr. Jarrard has served as the
Managing Director of Partnership Administration of Insignia since January 1991.
Neil J. Kreisel has been Executive Managing Director of Insignia and
President of Insignia Management Services-New York, Inc., a subsidiary of the
Company, since September 1995. Mr. Kreisel was promoted to his position of
President for the Insignia Residential Group in January 1997. For more than five
years, Mr. Kreisel has been President and Chief Executive Officer of Kreisel
Company, Inc., a residential property management firm.
John K. Lines has been General Counsel of Insignia since June 1994 and
General Counsel and Secretary of Insignia since July 1994. He became Vice
President and Secretary of Insignia Properties Trust in December 1996. From May
1993 until June 1994, Mr. Lines was employed as Assistant General Counsel and
Vice President of Ocwen Financial Corporation in West Palm Beach, Florida. From
October 1991 until April 1993, Mr. Lines was employed as Senior Attorney of Banc
One Corporation in Columbus, Ohio.
Martha L. Long joined the Company as its Controller in June 1994 and was
promoted to Senior Vice President - Finance and Controller in January 1997.
Prior to that time, she was Senior Vice President and Controller of The First
Savings Bank, FSB in Greenville, SC.
Stephen C. Schoenbaechler has been Senior Vice President of Asset
Management of Insignia since August 1994. From January 1992 to August 1994 Mr.
Schoenbaechler was Vice President of Asset Management.
Thomas R. Shuler was promoted to Chief Operating Officer of Insignia
Residential Group, upon its creation in January 1997. Mr. Shuler has been
Managing Director of Residential Property Management of Insignia since March
1991 and served as Executive Managing Director and President of Insignia
Management Services, a former division of the Company, since July 1994 to
January 1997.
Stephen B. Siegel assumed his duties as President of Insignia Commercial
Group in January 1997. Mr. Siegel has been a Managing Director of the Company
since July 1996 and President of the Edward S. Gordon Company, Incorporated in
New York City since 1992. From 1988 to 1992, Mr. Siegel was engaged in a joint
venture with Chubb Corporation to develop and acquire investment-grade office
buildings throughout the United States.
Ronald Uretta has been Insignia's Treasurer since January 1992. Since
August 1996, he has also served as Chief Operating Officer. He served as
Secretary from January 1992 to 1994 and as Chief Financial Officer from January
1992 to August 1996. He became Vice President and Treasurer of Insignia
Properties Trust in December 1996.
There is no family relationship between any of the executive officers of
the Company.
Andrew Farkas, Chairman, President and Chief Executive Officer of the
Company is the sole stockholder of the general partner of MAE, which has a 1%
general partner interest in MAE. Mr. Farkas is also (i) the sole stockholder of
the general partner of, and owns a limited partnership interest in, Metropolitan
Acquisition Partners
<PAGE>
IV, L.P. ("MAP IV") which together with its general partner owns 9.0% of the
outstanding Class A Common Stock of the Company and, (ii) the sole stockholder
of the general partner of Metropolitan Acquisition Partners V, L.P. ("MAP V")
which together with its general partner owns 2.8% of the outstanding Class A
Common Stock of the Company.
Item 2. Properties
The Company's principal executive office is located in a 244,000 square
foot office building at One Insignia Financial Plaza, in Greenville, South
Carolina. Its lease calls for a term of ten years and six months and expires on
March 31, 2005 with two five-year renewal options exercisable by Insignia.
Presently, the Company occupies 110,000 square feet and will assume an
additional 9,000 square feet in the building as the space becomes available. The
Company has a first right of refusal to lease an additional 16,299 square feet
in the building, subject to its expansion plans. The lease contains an option to
cancel at the end of the seventh year or ninth year, each with a cancellation
penalty.
The Company also occupies 21,000 square feet at Insignia Financial Center,
also in Greenville, South Carolina, with lease terms providing for two five-year
renewal options and termination options during the third, sixth, and eighth
years of the lease. The lease expires August 31, 2004. Both buildings are owned
by non- affiliated third parties. The current aggregate annual lease obligation
for both locations is $1,800,000. Nationally, the Company leases office space in
89 locations and 26 states, all from non-affiliated third parties, under leases
expiring at various dates between 1997 and 2005. Insignia believes its
facilities are adequate for their current and planned uses.
Item 3. Legal Proceedings
Gillett Family Trust, et al. v. Insignia Financial Group, et al. In April
1995, six wholly-owned subsidiaries of Insignia commenced tender offers for
limited partner interests in six partnerships, Shelter Properties I Limited
Partnership; Shelter Properties II Limited Partnership; Shelter Properties III
Limited Partnership; Shelter Properties IV Limited Partnership; Shelter
Properties V Limited Partnership; and Shelter Properties VI Limited Partnership
(collectively, "Shelter Properties Partnerships"). In May 1995, in the United
States District Court for the District of South Carolina, certain limited
partners of the Shelter Properties Partnerships commenced a lawsuit, on behalf
of themselves, on behalf of a putative class of plaintiffs, and derivatively on
behalf of the partnerships, challenging the actions taken by defendants
(including Insignia, the acquiring entities and certain officers of Insignia) in
the management of the Shelter Properties Partnerships and in connection with the
tender offers and certain other matters.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation required supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchasers, which was paid on September 5, 1996, together with
the payment of plaintiff's attorney's fees and expenses.
Chipain, Tom, et al., v. Walton Street Capital Acquisition II, LLC, et al.
In May 1996, Walton Street Capital Acquisition II, MLLC ("Walton Street"),
together with certain Insignia affiliates, commenced tender offers for limited
partner interests in ten real estate limited partnerships syndicated by The
Balcor Company ("Balcor"). In May 1996, certain persons claiming to be holders
of limited partner interests commenced a lawsuit in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division, on behalf of themselves,
on behalf of a putative class of plaintiffs, and, as amended, derivatively on
behalf of the Balcor-syndicated partnerships, challenging the actions of the
defendants (including Insignia, an Insignia officer and certain affiliates,
Walton Street and the general partners of the Balcor-syndicated partnerships) in
connection with the tender offers and certain other matters.
The complaint, as amended, contained allegations that the tender offers
were inadequate and coercive based, in part, upon information allegedly obtained
by Insignia in violation of its fiduciary duties. Defendants promptly moved to
dismiss the complaint and on June 5, 1996 the court dismissed the complaint as
to Insignia and Walton
<PAGE>
Street, with leave to replead. On June 11, 1996 plaintiffs filed an amended
class and derivative action complaint, repeating the same allegations as in
their initial complaint, and recasting some as derivative, rather than direct
class, claims. Defendants moved to dismiss the amended complaint and on June 18,
1996, the court again dismissed plaintiffs' amended complaint as to Insignia and
Walton Street.
On June 14, 1996 a second class and derivative suit, similar in material
respects to the Chipain litigation, was filed in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division. That complaint, entitled
Sandra Dee v. Walton Street Capital Acquisition II, LLC, et al., contained
substantially the same allegations as the Chipain complaints and asserted
additionally that the tender offers violated certain state securities and
consumer statutes. Pursuant to the court's orders consolidating the Chipain and
Dee complaints with another action which does not name Insignia, a new amended
and consolidated class and derivative action complaint was filed on July 25,
1996. The plaintiffs in the Chipain action are not parties to this latest
complaint.
On August 16, 1996 Insignia moved to dismiss the amended and consolidated
class and derivative action complaint. The motion was heard by the court on
September 27, 1996 at which time the court granted leave to the plaintiff to (i)
withdraw its pending complaint and (ii) serve a second amended and consolidated
class and derivative action complaint. On October 8, 1996 plaintiffs filed a
second amended and consolidated class and derivative action complaint which
added claims of alleged antitrust injury and unjust enrichment. On October 25,
1996 Insignia moved to dismiss the second amended and consolidated class action
complaint. That motion was heard by the court in December 1996.
On December 18, 1996 the court issued a decision granting Insignia's motion
to dismiss. By order dated January 7, 1997 the court dismissed the second
amended and consolidated class action compliant with prejudice. Plaintiffs filed
a notice of appeal in the December action on February 14, 1997.
The Company and certain subsidiaries are defendants in lawsuits arising in
the ordinary course of business. Such lawsuits are primarily insured claims
arising from accidents at managed properties. Claims may demand substantial
compensatory and punitive damages.
Management believes that the aforementioned lawsuits will be resolved
without material loss to the Company or its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, no matter was submitted to a vote of the
stockholders of the Company through the solicitation of proxies or otherwise.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
In October 1995, the Company completed a second public offering in which
3,850,000 shares of Class A Common Stock were sold by the Company and 1,350,000
shares were sold by certain stockholders of the Company. The offering price of
the Class A Common Stock was $14.50 per share. Prior to that time, in 1993, the
Company had completed an equity offering in which 5,910,000 shares of Class A
Common Stock were sold by the Company and 3,060,000 shares by certain
stockholders of the Company at a price of $8.00 per share. The Class A Common
Stock traded on the NASDAQ National Market prior to October 3, 1995, and since
that date has traded on The New York Stock Exchange under the symbol IFS. The
following table sets forth the high and low daily closing sale prices for the
Class A Common Stock as quoted through the NASDAQ National Market for the
periods prior to October 3, 1995, and since that date as reported on The New
York Stock Exchange.
Calendar Period High Low
1995
First Quarter....................................... 12 1/8 9 5/8
Second Quarter...................................... 13 1/2 11 3/8
Third Quarter....................................... 15 5/8 12 5/8
Fourth Quarter...................................... 19 1/4 13 3/16
1996
First Quarter....................................... 24 3/8 17 3/16
Second Quarter...................................... 29 5/8 20 1/2
Third Quarter....................................... 27 20 1/4
Fourth Quarter...................................... 26 20 3/4
The Company's transfer agent is First Union National Bank of North
Carolina, 230 S. Tryon Street, 10th Floor, Charlotte, North Carolina 28288-1154.
As of March 10, 1997, there were approximately 4,000 shareholders of record of
the Class A Common Stock.
The Company has never paid dividends upon the Class A Common stock and does
not currently intend to pay any dividends in the foreseeable future. Any payment
of future dividends and the amounts thereof will be dependent upon the Company's
earnings, financial requirements and other factors, including contractual
obligations. The payment of dividends is subject to certain restrictions under
the revolving credit facility. The Company declared a two for one stock split
effected as a stock dividend, with an effective date of January 29, 1996.
Item 6. Selected Financial Data
The selected statement of operations data set forth below with respect to
the years ended December 31, 1996, 1995, 1994, 1993 and 1992, and the balance
sheet data at December 31, 1996, 1995, 1994, 1993, and 1992 are derived from and
are qualified by reference to, the Consolidated Financial Statements of the
Company and the Notes thereto and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included as Item 7 in this Form 10-K.
The tables set forth below provide a variety of statistical information
about the Company. The Company believes that earnings before interest, income
taxes, depreciation and amortization (excluding equity earnings, apartment
properties, and minority interests) ("EBITDA" combined with funds from
operations (as hereinafter defined "FFO" is a significant indicator of the
strength of its results. EBITDA is a measure of a company's ability to generate
cash to service its obligations, including debt service obligations, and to
finance capital and other expenditures, including expenditures for acquisitions.
FFO is defined as income or loss from the real estate operations, which is net
income in accordance with generally accepted accounting principles excluding
gains or losses from debt restructuring, sales of property, and minority
interests, plus depreciation and provision for
<PAGE>
impairment. Neither EBITDA nor FFO represent cash flow as defined by generally
accepted accounting principles and do not necessarily represent amounts of cash
available to fund the Company's cash requirements.
It has been the practice of the Company to allocate most of the purchase
price of the portfolios acquired by the Company to management contracts. The
cost of these contracts is then amortized over three- to fifteen-year periods.
The Company is not required to make any further capital investment in the
management contracts subsequent to such period. The carrying value of the
property management contracts is reviewed if the facts and circumstances suggest
that it may be impaired. If the review indicates an impairment exists, an
appropriate adjustment is made to the property management contract basis. No
significant contracts are estimated to be impaired at December 31, 1996.
<TABLE>
<CAPTION>
Year
Ended December 31,
(In thousands except per share data)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Statement of Operations Data(1):
Revenues $227,074 $123,032 $75,453 $52,577 $30,868
Operating expenses 172,046 94,727 54,757 37,720 23,591
Equity earnings 3,590 2,461 113 -- --
Income before extraordinary
item 9,266 6,258 7,261 4,925 1,967
Extraordinary (loss) gain (702) (452) -- (255) 1,062
Net income 8,564 5,806 7,261 4,670 3,029
Income per common share
before extraordinary item 0.29 0.22 0.35 0.34 0.19
Net income per common share 0.27 0.20 0.35 0.32 0.29
</TABLE>
Year Ended December 31,
(In thousands except per share data)
1996 1995 1994 1993 1992
Supplemental Data
EBITDA(2) 49,008 28,305 20,696 14,857 7,277
Combined EBITDA and FFO(3) 62,449 32,916 20,809 14,857 7,277
Net EBITDA(4) 47,713 24,622 20,067 13,988 6,275
Net EBITDA per share 1.51 1.09 0.98 0.96 0.61
December 31,
(In thousands)
1996 1995 1994 1993 1992
Balance Sheet Data(1):
Cash and cash equivalents $ 54,614$ 49,846$ 36,596$ 34,005 $11,333
Management contracts 122,915 88,816 73,411 38,620 26,704
Investment in real estate limited
partnerships and other
securities 150,863 60,473 37,926 -- --
Total assets 492,402 245,409 174,272 88,835 51,484
Notes payable 49,840 32,996 63,198 1,139 16,060
Redeemable convertible
preferred stock -- 15,000 -- -- --
Company-obligated mandatory redeemable
convertible preferred securities of a
subsidiary trust 144,169 -- -- -- --
Stockholders' equity 217,905 157,013 78,806 71,540 18,524
Properties managed:
Residential (units) 264,675 261,391 216,157 141,035 99,645
Commercial properties
(thousands of square feet) 108,771 64,284 43,443 24,825 14,474
<PAGE>
(1)The Company and its affiliates have acquired control of, or management rights
to, 33 portfolios of properties since 1990, the results of which affect the
comparability of operations.
(2)Earnings before interest expense, taxes, depreciation and amortization
(excluding equity earnings, apartment property, and minority interest).
(3)Funds from operations is a measure of real estate operations, which
represents net income or loss in accordance with generally accepted
accounting principles excluding gains or losses from debt restructuring,
sales of property, and minority interests plus depreciation and provisions
for impairment.
(4)EBITDA and FFO less interest expense and earnings allocable to preferred
securities.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Insignia's prime objective is to increase income from operations as well as
increase stockholder value through strategic growth in the assets that provide
such returns. Earnings before interest, income taxes, depreciation and
amortization (excluding equity earnings, apartment property and minority
interest) ("EBITDA") continued to grow this year with an increase of 73% as
compared to December 31, 1995. Combined EBITDA and funds from operations (as
hereinafter defined "FFO") increased 90%, and net EBITDA increased 94%. FFO is
defined as income or loss from the real estate operations, which is net income
in accordance with generally accepted accounting principles excluding gains or
losses from debt restructuring, sales of property and minority interests, plus
depreciation and provision for impairment. Assets grew 101% from $245.4 million
at December 31, 1995 to $492.4 million at December 31, 1996. Growth occurred
mainly in investments in real estate limited partnerships and other securities,
property management contracts and costs in excess of net assets of acquired
businesses. The growth in these areas is due primarily to acquisitions closed in
1996.
Cash and cash equivalents increased 10% from $49.8 million to $54.6
million. The primary sources of funds include $15.0 million in advances drawn,
net of payments, on the $200.0 million revolving credit facility, $149.5 million
from the sale of the trust based convertible preferred securities, $12.3 million
in collections from limited partnership distributions and $16.9 million in net
collections on notes receivable. The major uses of cash include the acquisition
of management contracts and acquired businesses of ESG, Paragon and NPI ("ESG",
"Paragon" and "NPI" as hereinafter defined) and real estate limited partnership
interests. See the Statements of Cash Flows and the discussion on Liquidity and
Capital Resources for more information.
The $6.3 million in restricted cash set aside on September 27, 1995 was
fully paid out in 1996. The payment resulted from a suit filed in connection
with purchases of real estate limited partner interests.
Receivables increased 74% from $26.4 million for 1995 to $46.0 million for
1996. This increase was attributable to the growth in revenue types generated by
the acquisitions, primarily the ESG and Paragon acquisitions. While no
receivables were included in the assets purchased, the very nature of the
business (leasing and brokerage) caused the balances to grow since the
commissions are received in phases as contract requirements are completed.
Property and equipment owned increased 57% from $7.7 million to $12.1
million. The internal growth of the Company in combination with the acquisition
growth resulted in additional capacity needs in computer systems and space.
Systems expenditures were $3.0 million in 1996 while leasehold improvements
resulted in capital expenditures of $1.3 million in 1996.
Investments in real estate limited partnerships and other securities
increased 149% from $60.5 million to $150.9 million in 1996. The increase
resulted primarily from the NPI acquisition which included equity interests in
14 limited partnerships. Additionally, there was an increase in limited
partnership unit purchases on the
<PAGE>
secondary market and investments in real estate joint ventures. In 1996,
distributions from these limited partnerships to Insignia amounted to $12.3
million.
The following tables provide selected financial data on each of the 27
public partnerships in which the Company has an investment, including both
balance sheet and condensed operating results as of and for the twelve months
ended December 31, 1996. The Company continued its positioning of the properties
for maximization of revenue growth through major repairs of $3.3 million,
particularly on the NPI partnerships since this was the first year of ownership
and management. The data has been derived from the respective historical
financial statements of each partnership for the applicable period.
<PAGE>
Selected Financial Data as of and for the Year Ended December 31, 1996(1) (2)
(5) (In thousands of dollars, except ownership interest data)
<TABLE>
<CAPTION>
CCGF CCIP CCIP3 CCP III CCP IV CCP VI JCIP
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and investments $ 7,763 $14,646 $15,922 $ 3,603 $ 9,754 $ 1,783 $ 2,030
Receivables and deposits 1,184 3,082 2,174 222 1,124 205 403
Other assets 1,053 2,709 2,254 554 6,772 219 299
Real estate 41,105 134,035 61,821 13,818 128,128 16,664 13,533
Less accumulated depreciation (20,683) (73,823) (12,634) (9,198) (91,934) (7,150) (5,691)
Net real estate 20,422 60,212 49,187 4,620 36,194 9,514 7,842
Total assets $30,422 $80,649 $69,537 $ 8,999 $53,844 $11,721 $10,574
Mortgage notes payable $30,690 $27,891 $30,525 $ 4,226 $72,233 $10,138 $ 2,325
Other liabilities 940 4,656 1,716 363 2,853 633 294
Total liabilities 31,630 32,547 32,241 4,589 75,086 10,771 2,619
Partners' capital (deficit) (1,208) 48,102 37,296 4,410 (21,242) 950 7,955
Total liabilities and
partners' capital $30,422 $80,649 $69,537 $ 8,999 $53,844 $11,721 $10,574
Insignia ownership
interest 35.25% 23.07% 11.01% 23.32% 19.15% 22.84% 9.86%
Operations Data
Revenues $11,313 $29,898 $13,767 $ 4,407 $27,907 $ 3,314 $ 2,260
Property operating expenses 5,769 19,171 7,782 2,686 14,362 2,085 1,138
Depreciation 1,894 6,637 2,741 842 7,048 713 515
Interest 1,884 2,126 1,573 646 6,052 890 191
Administrative 656 1,462 632 360 1,317 179 293
Total operating expenses 10,203 29,396 12,728 4,534 28,779 3,867 2,137
Income (loss) from
operations(3) $ 1,110 $ 502 $ 1,039 $ (127) $ (872) $ (553) $ 123
Other Data
Funds from Operations(4) $ 3,004 $ 7,139 $ 3,780 $ 715 $ 6,176 $ 160$ 638
<FN>
(1) Data for Shelter IV and Shelter VI is as of and for the twelve months ended
October 31, 1996 and data for Shelter V is as of and for the twelve months
ended November 30, 1996.
(2) Data for CCIP represents the combination of CCIP and Consolidated Capital
Equity Partners, which owns the real properties that secure the master
notes held by CCIP.
(3) Amounts shown before gains on disposition of real property and/or any
extraordinary items.
(4) Funds from Operations represents income or loss from operations, which
represents net income or loss in accordance with GAAP excluding gains or
losses from debt restructuring or sales of property, plus depreciation and
provision for impairment. Depreciation and provision for impairment are the
only non-cash adjustments. Funds from Operations does not represent cash
flow from operating activities in accordance with GAAP and is not
indicative of cash available to fund all of the Company's cash needs. Funds
from Operations should not be considered as an alternative to net income or
any other GAAP measure as an indicator of performance and should not be
considered as an alternative to cash flow as a measure of liquidity.
(5) Selected financial data is presented on the following partnerships:
Consolidated Capital Growth Fund ("CCGF"), Consolidated Capital
Institutional Properties ("CCIP"), Consolidated Capital Institutional
Properties/3 ("CCIP 3"), Consolidated Capital Properties III ("CCP III"),
Consolidated Capital Properties IV ("CCP IV"), Consolidated Capital
Properties VI ("CCP VI"), Johnstown/Consolidated Income Partners ("JCIP"),
Shelter Properties I Limited Partnership ("Shelter I"), Shelter Properties
II Limited Partnership ("Shelter II"), Shelter Properties III Limited
Partnership ("Shelter III"), Shelter Properties IV Limited Partnership
("Shelter IV:), Shelter Properties V Limited Partnership ("Shelter V"),
Shelter Properties VI Limited Partnership ("Shelter VI"), Davidson Growth
Properties ("DGP"), National Property Investors III ("NPI III"), National
Property Investors 4 ("NPI 4"), National Property Investors 5 ("NPI 5"),
National Property Investors 6 ("NPI 6"), National Property Investors 7
("NPI 7"), National Property Investors 8 ("NPI 8"), Century Properties Fund
XIV ("CPF XIV"), Century Property Fund XV ("CPF XV"), Century Property Fund
XVI ("CPF XVI"), Century Property Fund XVII ("CPF XVII"), Century Property
Fund XVIII ("CPF XVIII"), Century Property Fund XIX ("CPF XIX"), Century
Property Growth Fund XXII ("CPF XXII").
</FN>
</TABLE>
<PAGE>
Selected Financial Data as of and for the Year Ended December 31, 1996(1) (2)
(5) - Continued (In thousands of dollars, except ownership interest data)
<TABLE>
<CAPTION>
Shelter I Shelter II Shelter III Shelter IV Shelter V Shelter VI DGP
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and investments $ 2,795 $ 2,223 $ 1,509 $ 2,291 $ 6,108 $ 3,106 $ 1,108
Receivables and deposits 1,086 1,156 1,163 2,548 1,724 1,967 695
Other assets 493 392 401 838 1,261 919 480
Real estate 19,304 24,496 25,406 59,038 74,061 51,019 23,569
Less accumulated
depreciation (12,952) (15,043) (13,288) (30,365) (37,446) (22,800) (8,377)
Net real estate 6,352 9,453 12,118 28,673 36,615 28,219 15,192
Total assets $10,726 $13,224 $15,191 $34,350 $45,708 $34,211 $17,475
Mortgage notes payable $11,563 $ 8,738 $ 8,440 $24,590 $31,884 $27,372 $12,162
Other liabilities 530 718 779 1,688 1,546 1,413 872
Total liabilities 12,093 9,456 9,219 26,278 33,430 28,785 13,034
Partners' capital
(deficit) (1,367) 3,768 5,972 8,072 12,278 5,426 4,441
Total liabilities and
partners' capital $10,726 $13,224 $15,191 $34,350 $45,708 $34,211 $17,475
Insignia ownership
interest 27.43% 22.55% 23.83% 22.72% 25.88% 19.61% 7.17%
Operations Data
Revenues $ 4,826 $ 5,509 $ 5,377 $10,910 $12,861 $10,079 $ 5,257
Property operating
expenses 2,505 3,178 3,060 6,171 7,200 5,357 2,868
Depreciation 630 1,087 923 1,846 3,045 1,973 757
Interest 942 813 776 2,257 2,686 2,517 1,076
Administrative 146 174 205 390 328 293 226
Total operating expenses 4,223 5,252 4,964 10,664 13,259 10,140 4,927
Income (loss) from
operations(3) $ 603 $ 257 $ 413 $ 246 $ (398) $ ( 61) $ 330
Other Data
Funds from Operations(4)$ 1,233 $ 1,344 $ 1,336 $ 2,092 $ 2,647 $ 1,912 $ 1,087
<FN>
(1) Data for Shelter IV and Shelter VI is as of and for the twelve months ended
October 31, 1996 and data for Shelter V is as of and for the twelve months
ended November 30, 1996.
(2) Data for CCIP represents the combination of CCIP and Consolidated Capital
Equity Partners, which owns the real properties that secure the master
notes held by CCIP.
(3) Amounts shown before gains on disposition of real property and/or any
extraordinary items.
(4) Funds from Operations represents income or loss from operations, which
represents net income or loss in accordance with GAAP excluding gains or
losses from debt restructuring or sales of property, plus depreciation and
provision for impairment. Depreciation and provision for impairment are the
only non-cash adjustments. Funds from Operations does not represent cash
flow from operating activities in accordance with GAAP and is not
indicative of cash available to fund all of the Company's cash needs. Funds
from Operations should not be considered as an alternative to net income or
any other GAAP measure as an indicator of performance and should not be
considered as an alternative to cash flow as a measure of liquidity.
(5) Selected financial data is presented on the following partnerships:
Consolidated Capital Growth Fund ("CCGF"), Consolidated Capital
Institutional Properties ("CCIP"), Consolidated Capital Institutional
Properties/3 ("CCIP 3"), Consolidated Capital Properties III ("CCP III"),
Consolidated Capital Properties IV ("CCP IV"), Consolidated Capital
Properties VI ("CCP VI"), Johnstown/Consolidated Income Partners ("JCIP"),
Shelter Properties I Limited Partnership ("Shelter I"), Shelter Properties
II Limited Partnership ("Shelter II"), Shelter Properties III Limited
Partnership ("Shelter III"), Shelter Properties IV Limited Partnership
("Shelter IV"), Shelter Properties V Limited Partnership ("Shelter V"),
Shelter Properties VI Limited Partnership ("Shelter VI"), Davidson Growth
Properties ("DGP"), National Property Investors III ("NPI III"), National
Property Investors 4 ("NPI 4"), National Property Investors 5 ("NPI 5"),
National Property Investors 6 ("NPI 6"), National Property Investors 7
("NPI 7"), National Property Investors 8 ("NPI 8"), Century Properties Fund
XIV ("CPF XIV"), Century Property Fund XV ("CPF XV"), Century Property Fund
XVI ("CPF XVI"), Century Property Fund XVII ("CPF XVII"), Century Property
Fund XVIII ("CPF XVIII"), Century Property Fund XIX ("CPF XIX"), Century
Property Growth Fund XXII ("CPF XXII").
</FN>
</TABLE>
<PAGE>
Selected Financial Data as of and for the Year Ended December 31, 1996(1)(4) -
Continued (In thousands of dollars, except ownership interest data)
<TABLE>
<CAPTION>
CPF
NPI III NPI 4 NPI 5 NPI 6 NPI 7 NPI 8 XIV(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and investments $ 964 $ 4,674 $ 1,901 $15,450 $ 5,471 $ 1,871 $ 1,976
Receivables and deposits 127 449 -- 199 624 1,550 --
Other assets 1,293 1,218 1,092 3,439 999 441 1,130
Real estate 34,255 25,722 33,073 78,329 45,023 29,536 26,227
Less accumulated
depreciation (22,224) (17,026) (22,077) (47,338) (22,372) (13,915) (13,184)
Net real estate 12,031 8,696 10,996 30,991 22,651 15,621 13,043
Total assets $14,415 $15,037 $13,989 $50,079 $29,745 $19,483 $16,149
Mortgage notes payable $23,998 $19,300 $14,536 $34,536 $20,317 $10,983 $16,185
Other liabilities 1,265 796 435 11,975 2,582 889 558
Total liabilities 25,263 20,096 14,971 46,511 22,899 11,872 16,743
Partners' capital
(deficit) (10,848) (5,059) (982) 3,568 6,846 7,611 (594)
Total liabilities and
partners' capital $14,415 $15,037 $13,989 $50,079 $29,745 $19,483 $16,149
Insignia ownership
interest 44.49% 54.02% 46.06% 44.11% 42.13% 37.28% 41.39%
Operations Data
Revenues $ 7,943 $ 6,329 $ 5,845 $14,036 $ 7,339 $ 4,627 $ 5,897
Property operating
expenses 4,215 2,892 3,414 7,134 3,649 2,432 3,050
Depreciation 1,288 957 1,331 3,235 1,681 1,168 850
Interest 2,113 1,517 1,345 2,526 1,620 907 1,667
Administrative 237 302 270 483 356 256 394
Total operating expenses 7,853 5,668 6,360 13,378 7,306 4,763 5,961
Income (loss) from
operations(2) $ 90 $ 661 $ (515) $ 658 $ 33 $ (136) $ (64)
Other Data
Funds from Operations(3)$ 1,378 $ 1,618 $ 816 $ 3,893 $ 1,714 $ 1,032 $ 786
<FN>
(1) Data for CPF XIV and XV does not include commercial properties owned by CPF
XIV and CPF XV. The Company did not acquire an economic interest in those
properties.
(2) Amounts shown before gains on disposition of real property and/or any
extraordinary items.
(3) Funds from Operations represents income or loss from operations, which
represents net income or loss in accordance with GAAP excluding gains or
losses from debt restructuring or sales of property, plus depreciation and
provision for impairment. Depreciation and provision for impairment are the
only non-cash adjustments. Funds from Operations does not represent cash
flow from operating activities in accordance with GAAP and is not
indicative of cash available to fund all of the Company's cash needs. Funds
from Operations should not be considered as an alternative to net income or
any other GAAP measure as an indicator of performance and should not be
considered as an alternative to cash flow as a measure of liquidity.
(4) Selected financial data is presented on the following partnerships:
Consolidated Capital Growth Fund (CCGF), Consolidated Capital Institutional
Properties ("CCI"), Consolidated Capital Institutional Properties/3 ("CCIP
3"), Consolidated Capital Properties III ("CCP III"), Consolidated Capital
Properties IV ("CCP IV"), Consolidated Capital Properties VI ("CCP VI"),
Johnstown/Consolidated Income Partners ("JCIP"), Shelter Properties I
Limited Partnership ("Shelter I"), Shelter Properties II Limited
Partnership ("Shelter II"), Shelter Properties III Limited Partnership
("Shelter III"), Shelter Properties IV Limited Partnership ("Shelter IV"),
Shelter Properties V Limited Partnership ("Shelter V"), Shelter Properties
VI Limited Partnership ("Shelter VI"), Davidson Growth Properties ("DGP"),
National Property Investors III ("NPI III"), National Property Investors 4
("NPI 4"), National Property Investors 5 ("NPI 5"), National Property
Investors 6 ("NPI 6"), National Property Investors 7 ("NPI 7"), National
Property Investors 8 ("NPI 8"), Century Properties Fund XIV ("CPF XIV"),
Century Property Fund XV ("CPF XV"), Century Property Fund XVI ("CPF XVI"),
Century Property Fund XVII ("CPF XVII"), Century Property Fund XVIII ("CPF
XVIII"), Century Property Fund XIX ("CPF XIX"), Century Property Growth
Fund XXII ("CPF XXII").
</FN>
</TABLE>
<PAGE>
Selected Financial Data as of and for the Year Ended December 31, 1996(1)(4) -
Continued (In thousands of dollars, except ownership interest data)
<TABLE>
<CAPTION>
Total
CPF CPF CPF CPF CPF CPGF Combined
XV(1) XVI XVII XVIII XIX XXII Partnerships
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and investments $ 985 $ 535 $ 4,441 $ 1,259 $ 3,419 $ 1,111 $118,698
Receivables and deposits 720 202 422 526 -- 500 24,052
Other assets 863 350 1,583 309 1,958 4,210 37,529
Real estate 47,190 14,700 65,225 26,701 95,009 129,725 1,336,712
Less accumulated
depreciation (20,877) (6,873) (28,140) (9,090) (37,146) (48,178) (669,824)
Net real estate 26,313 7,827 37,085 17,611 57,863 81,547 666,888
Total assets $28,881 $ 8,914 $43,531 $19,705 $63,240 $87,368 $847,167
Mortgage notes payable $22,066 $ 7,487 $36,374 $18,675 $61,668 $73,164 $662,066
Other liabilities 1,215 376 1,443 591 1,871 2,572 45,569
Total liabilities 23,281 7,863 37,817 19,266 63,539 75,736 707,635
Partners' capital
(deficit) 5,600 1,051 5,714 439 (299) 11,632 139,532
Total liabilities and
partners' capital $28,881 $ 8,914 $43,531 $19,705 $63,240 $87,368 $847,167
Insignia ownership
interest 39.74% 36.83% 33.79% 28.54% 27.36% 20.15% --
Operations Data
Revenues $ 8,373 $ 2,721 $12,587 $ 4,737 $15,747 $20,390 $264,256
Property operating
expenses 5,783 2,045 6,481 2,221 8,460 10,601 145,709
Depreciation 1,483 460 2,127 679 2,790 3,865 52,565
Interest 2,177 625 3,539 1,398 5,143 6,591 55,597
Administrative 285 258 307 293 302 391 10,795
Total operating expenses 9,728 3,388 12,454 4,591 16,695 21,448 264,666
Income (loss) from
operations(2) $(1,355) $ (667) $ 133 $ 146 $ (948) $(1,058) $ (410)
Other Data
Funds from Operations(3) $ 128 $ (207) $2,260 $ 825 $1,842 $2,807 $52,155
<FN>
(1) Data for CPF XIV and XV does not include commercial properties owned by CPF
XIV and CPF XV. The Company did not acquire an economic interest in those
properties.
(2) Amounts shown before gains on disposition of real property and/or any
extraordinary items.
(3) Funds from Operations represents income or loss from operations, which
represents net income or loss in accordance with GAAP excluding gains or
losses from debt restructuring or sales of property, plus depreciation and
provision for impairment. Depreciation and provision for impairment are the
only non-cash adjustments. Funds from Operations does not represent cash
flow from operating activities in accordance with GAAP and is not
indicative of cash available to fund all of the Company's cash needs. Funds
from Operations should not be considered as an alternative to net income or
any other GAAP measure as an indicator of performance and should not be
considered as an alternative to cash flow as a measure of liquidity.
(4) Selected financial data is presented on the following partnerships:
Consolidated Capital Growth Fund ("CCGF"), Consolidated Capital
Institutional Properties ("CCIP"), Consolidated Capital Institutional
Properties/3 ("CCIP 3"), Consolidated Capital Properties III ("CCP III"),
Consolidated Capital Properties IV ("CCP IV"), Consolidated Capital
Properties VI ("CCP VI"), Johnstown/Consolidated Income Partners ("JCIP"),
Shelter Properties I Limited Partnership ("Shelter I"), Shelter Properties
II Limited Partnership ("Shelter II"), Shelter Properties III Limited
Partnership ("Shelter III"), Shelter Properties IV Limited Partnership
("Shelter IV"), Shelter Properties V Limited Partnership ("Shelter V"),
Shelter Properties VI Limited Partnership ("Shelter VI"), Davidson Growth
Properties ("DGP"), National Property Investors III ("NPI III"), National
Property Investors 4 ("NPI 4"), National Property Investors 5 ("NPI 5"),
National Property Investors 6 ("NPI 6"), National Property Investors 7
("NPI 7"), National Property Investors 8 ("NPI 8"), Century Properties Fund
XIV ("CPF XIV"), Century Property Fund XV ("CPF XV"), Century Property Fund
XVI ("CPF XVI"), Century Property Fund XVII ("CPF XVII"), Century Property
Fund XVIII ("CPF XVIII"), Century Property Fund XIX ("CPF XIX"), Century
Property Growth Fund XXII ("CPF XXII").
</FN>
</TABLE>
<PAGE>
Apartment properties of $22.1 million and the related non-recourse mortgage
note payable, reflects Insignia's consolidation of National Property Investors
4, Limited Partnership ("NPI 4"), a 54.02% owned partnership. These limited
partnership interests were acquired with the NPI acquisition and results of the
partnership's operations are consolidated with Insignia's financial statements
at December 31, 1996.
Property management contracts increased 38% from $88.8 million to $122.9
million as a direct result of three acquisitions in 1996. The National Property
Investors, Inc. ("NPI") acquisition occurred January 19, 1996 and added
approximately 38,000 units to the existing residential management portfolio
along with 3.9 million square feet to the existing commercial management
portfolio. The June 30, 1996 acquisition of Edward S. Gordon Company, Inc.,
("ESG") based out of New York, added 25.5 million square feet, comprised of 57
properties, to the commercial management portfolio. The Paragon Group Property
Services, Inc. ("Paragon") acquisition occurred on June 30, 1996 and added
approximately 22.0 million square feet, comprised of 166 properties, to the
existing commercial portfolio. The management contract basis increase was
partially offset by the receipt of advisory fees received from the sale of
Allegiance Realty Group, Inc. ("Allegiance") properties. In November, 1994, the
Company acquired substantially all of the assets (consisting mainly of
management contracts) of Allegiance, a wholly owned subsidiary of the Balcor
Company, Inc. ("Balcor"). Balcor announced in the second quarter of 1996 its
intention to sell a large portion of the properties covered by these management
contracts. The Company entered into an agreement with Balcor whereby an advisory
fee would be paid to the Company based on the property sales for services
rendered in the sales transactions. The fees are paid in cash after the close of
the transaction and have been applied to the remaining unamortized contract
basis associated with the Balcor properties. In 1996, approximately $8.2 million
in advisory fees were collected.
Costs in excess of net assets of acquired businesses increased $72.5
million from December 31, 1995 to December 31, 1996. The increase resulted from
the ESG and Paragon acquisitions and the payment of purchase price in excess of
the net assets.
Other assets increased by $5.5 million from December 31, 1995 to December
31, 1996. This increase is related to acquisitions and internal growth within
the Company. Non-compete agreements resulting in the payment of $1.7 million
occurred with the ESG and Paragon acquisitions. Deferred expenses have also
increased due to the nature of the ESG and Paragon businesses and the
recognition of expenses occurring when the related income is recognized.
Additionally, the Company has incurred approximately $1.5 million in deferred
expenses in connection with the initial implementation stages of a change in its
computer platform.
Commissions payable increased by $18.1 million in 1996 due primarily to the
ESG acquisition and the brokerage business purchased. Insignia did not generate
material amounts of this revenue stream and related expenses in 1995.
Accrued and sundry liabilities increased by 59% from $25.6 million to $40.7
million. The increase is largely due to the internal growth of the Company, as
well as acquisitions. Benefit liabilities, such as 401K, accrued vacation and
accrued bonus liability, increased in 1996 as the number of Insignia employees
increased. Deferred taxes increased by $8.8 million from December 1995 to
December 1996. The increase is primarily due to deferred tax liabilities
incurred with the NPI and Paragon purchases occurring in 1996. Additionally, at
December 31, 1996, there were liabilities outstanding of approximately $2.3
million relating to the ESG and Paragon acquisitions.
Notes payable increased by 51% from $33.0 million to $49.8 million. The
increase was primarily on the $200.0 million credit facility with draws of
$165.0 million in 1996. The cash drawn was used to fund the NPI, ESG, Paragon
and GSSW acquisitions. In November 1996, $150.0 million was paid down on the
outstanding balance of the credit facility by the funds received from the sale
of the Preferred Securities and cash generated from operating results.
The non-recourse mortgage note payable shows an increase over 1995 with a
balance at December 31, 1996 of $19.3 million. The mortgage note relates to NPI
4 Partnership which has been consolidated.
<PAGE>
The subordinated convertible note payable and redeemable convertible
preferred stock were converted into Class A Common Stock on April 29, 1996. The
note payable was converted into approximately 1.1 million shares of Class A
Common Stock while the preferred stock converted into approximately 1.5 million
shares of Class A Common Stock.
In November 1996, 2,990,000 shares of the Company-obligated mandatory
redeemable convertible preferred securities of a subsidiary trust ("Preferred
Securities"), were issued and sold for an aggregate amount of $149.5 million.
Related expenses were incurred of approximately $5.4 million. The Preferred
Securities will mature on September 30, 2016 and bear interest at the rate of
6.5% per annum, with quarterly distributions payable in arrears. The Company has
the option to defer interest payments from time to time, not to exceed 20
consecutive quarters. The Company's first distribution was made on December 31,
1996. The Preferred Securities are convertible into the Company's Class A Common
Stock at $26.50 per share through September 30, 2016. The Company has the right
to redeem the Preferred Securities after November 1, 1999. The proceeds of the
offering were used to reduce current debt under the $200.0 million revolving
credit facility .
Stockholders' equity increased by 39% from $157.0 million at December 31,
1996 to $217.9 million primarily from issuance of stock from exercise of
options; assumption of options in the ESG acquisition; and the conversion of
convertible issues from preferred to common equities. Additionally, net income
of $8.6 million less preferred dividends of $199,000 increased stockholders'
equity.
Results of Operations for the Years Ended December 31, 1996 and 1995
Acquisition activity and real estate investing were the primary reasons for
the Company's growth in results from operations, reflected by an increase of 90%
in combined EBITDA and FFO, from $32.9 million for 1995 to $62.4 million for
1996; and an increase of 94% in Net EBITDA, from $24.6 million for 1995 to $47.7
million for 1996.
The Company uses Net EBITDA as a primary indicator of its financial
performance, which is combined EBITDA and FFO less interest expense and earnings
allocable to preferred securities. See the table in Liquidity and Capital
Resources that breaks out all components of Net EBITDA. Net EBITDA per share was
$1.51 for 1996 compared to $1.09 for 1995.
Revenues increased 85% for the year from $123.0 million for 1995 to $227.1
million for 1996, with the primary growth being in fee based services revenues.
The acquisitions completed during the year contributed substantially to the
growth, with those acquisitions being the NPI acquisition in January 1996 and
the ESG and Paragon acquisitions in June 1996.
Other income increased $903,000 from $1.4 million for 1995 to $2.3 million
for 1996. The primary reason for the increase was an increase of $300,000 in
amounts received from an agency that serves as an insurance broker for various
partnerships managed by the Company, and approximately $360,000 in a gain on the
sale of a participation note. Various other items flowed through other income
such as miscellaneous fees and legal reimbursements.
Fee based services expenses increased 92% from $85.7 million for 1995 to
$164.8 million for 1996. This increase is primarily caused by the completed
acquisitions mentioned previously, as well as expenses incurred in connection
with unsuccessful acquisitions of approximately $935,000. Fee based service
expenses have increased at a higher percentage than fee based service revenues
as a result of lower profit margins attributable to recent commercial
acquisitions. Also included in fee based services revenues and expenses are the
results of the Company's activities in the consumer services area with
operations contributing losses of $2.0 million for the year.
Administrative expenses decreased 10% from $8.0 million for 1995 to $7.2
million for 1996. This decrease was achieved through a reduction in occupancy
costs with some of the functions decentralizing to other locations within the
Company; and the revised structure of the Company's insurance program for its
operations.
<PAGE>
During 1995, a one-time charge for $1.0 million was incurred as a result of
terminating a contractual arrangement with a senior executive/director. Both the
Company and the employee agreed to the termination. No such expenses were
incurred during the year ended December 31, 1996.
Interest expense increased 83% from $7.0 million for 1995 to $12.9 million
for 1996, primarily as a result of the higher debt balances carried as a result
of 1996 acquisitions.
With the acquisition of limited partner interests in excess of 50% in a
limited partnership, the Company now consolidates the results of the NPI 4
Partnership. The categories entitled apartment property revenues, apartment
property expenses, apartment property interest and depreciation relate solely to
the operations of the property owned by the partnership.
Depreciation and amortization increased 71% from $13.5 million for 1995 to
$23.0 million for 1996. This is a result of the amortization of the acquired
property management contracts, goodwill, and the additions to property and
equipment.
Equity earnings increased from $2.5 million for 1995 to $3.6 million for
1996, primarily as a result of the increased ownership of real estate limited
partner interests. On a same store basis, revenues for the underlying properties
increased 4.5% over 1995, and expenses (excluding major repairs and maintenance
mentioned previously) increased 1.7% over 1995. The Company also accomplished
the refinancing of $164 million in loans on 33 properties. These refinancings
decreased interest costs at the partnership level, and increased cash available
for distribution. Funds from operations increased from $4.6 million for 1995 to
$13.4 million for 1996.
Minority interests also includes a $1.6 million distribution reflecting the
carrying costs on the Preferred Securities, as this is a form of outside
ownership. The Trust issued $149.5 million in such Preferred Securities in the
fourth quarter of 1996, with the Company owning 100% of the common securities of
the Trust.
The provision for income taxes increased 48% from $3.8 million for 1995 to
$5.7 million for 1996 in direct proportion to the increase in income before
income taxes and extraordinary item, resulting from the factors discussed above.
The extraordinary item relates to the early extinguishment of debt on the
Company's books for 1995, and on the limited partnerships' books of which the
Company owns equity interests for 1996.
As a result of the foregoing, net income increased 48% from $5.8 million
for 1995 to $8.6 million for 1996. Earnings per share were $.27 for 1996
compared to $.20 for 1995.
Results of Operations for the Years ended December 31, 1995 and 1994
The results of operations reflected the high volume of acquisition activity
of both property management contracts and limited partner interests. Revenues
increased 63% from $75.5 million for 1994 to $123.0 million for 1995 and,
consequently, EBITDA increased 37% from $20.7 million for 1994 to $28.3 million
for 1995. Combined EBITDA and FFO increased 58% from $20.8 million for 1994 to
$32.9 million for 1995. Net EBITDA increased 23% from $20.1 million for 1994 to
$24.6 million for 1995.
Property and asset management fee based services revenues increased 74%
from $63.1 million for 1994 to $109.6 million for 1995. The primary reason for
the increase was the closing of acquisitions during the last quarter of 1994 and
all of 1995. Those acquisitions were the property management business of
Allegiance Realty Group, Inc. and its subsidiaries ("Allegiance"), Gordon
Realty, Inc., the OPSI acquisition and the DEK acquisition. Residential units
managed increased from approximately 216,000 for 1994 to approximately 261,000
for 1995 including co-ops and condos. Commercial square feet managed increased
from approximately 43 million for 1994 to approximately 64 million for 1995.
<PAGE>
Financial services fee based services revenues decreased by 3% from 1994 to
1995, primarily due to the performance of the mortgage subsidiary in place at
that time. Fluctuations in interest rates impact volume and resulting fees
generated in this subsidiary.
Interest income increased 91% from $1.5 million for 1994 to $2.8 million
for 1995, due in large part to increased cash balances, a loan participation
agreement, and the rise in interest rates.
Equity earnings in limited partner interests increased from $113,000 for
1994 to $2.5 million for 1995. While the Company had $37.9 million invested in
limited partner interests at December 1994, they were acquired at the end of the
year and, consequently, the equity earnings were not significant. During 1995
the Company invested additional funds to bring the total limited partner
interests to $60.5 million. Insignia's share of funds from operations was $4.6
million for the year ended December 31, 1995.
Fee based services expenses increased 75% from $49.1 million for 1994 to
$85.7 million for 1995, primarily in the property and asset management function.
Property and asset management fee based services expenses increased 88% from the
acquisitions described above. Almost all of the growth in property management
portfolios was contractual or third-party in nature and, typically, such
expenses run slightly higher than with affiliated management.
Financial services fee based expenses increased 15%, primarily because of
compensation accruals for performance-based bonuses due to the successful
completion of the 1995 equity offering and the NPI acquisition that closed in
January 1996.
Administrative expenses increased 42% from $5.7 million for 1994 to $8.0
million for 1995. The increase was due in part to intercompany cost allocations
from the financial services division for its role in administrative support,
causing an increase of $545,000 over 1994. This increased allocation was a
direct result of the additional time spent on the completion of the equity
offering and the Revolving Credit Facility. Professional fees increased by
$673,000 and insurance costs increased by $306,000. These expense increases were
a direct result of the growth within Insignia.
The $1.0 million expense for termination of an employment agreement was a
one-time charge for ending a contractual arrangement with a senior
executive/director by mutual agreement. No such expenses were incurred in 1994.
Interest expense increased from $742,000 for 1994 to $7.0 million for 1995
as a direct result of the higher debt balances maintained throughout the year,
primarily in connection with acquisitions.
Depreciation and amortization increased 69% from $8.0 million for 1994 to
$13.5 million for 1995 as a direct result of the increase in property management
contract rights acquired.
The provision for income taxes decreased 21% from $4.8 million for 1994 to
$3.8 million for 1995 in direct proportion to the decrease in income before
income taxes and extraordinary items resulting from higher interest and
depreciation and amortization expense.
The extraordinary item related to loan costs (net of taxes) of $607,000
that had to be written off when the outstanding balance was prepaid. Also, as a
result of the prepayment, the Company received a prepayment discount of $155,000
(net of taxes).
As a result of the above, net income decreased 20% from $7.3 million for
1994 to $5.8 million for 1995.
Impact Of Inflation And Changing Prices
The revenues of the property management division are highly dependent upon
the aggregate rents of the properties it manages, which are affected by rental
rates and building occupancy rates. Rental rate increases are
<PAGE>
highly dependent upon market conditions and the competitive environments in the
properties' locations. Employee compensation is the principal cost element of
property management. Recent price and cost trends have not significantly
affected profit margins, and are not expected to have significant negative
effects in the foreseeable future. Interest rate fluctuations generally do not
adversely affect a property's ability to perform due to the underlying debt
carrying fixed rates. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services, inasmuch
as such prices are affected by inflation.
For the last several years, rental and occupancy rates across the country
have generally been stable. However, in most areas of the Company's operations,
the absence for several years of any significant new apartment construction is
now resulting in upward pressure on both occupancy and rental levels. Rental
rates of U.S. Department of Housing and Urban Development ("HUD") properties are
generally based on the expenses of maintaining the properties, rather than
market forces, and are subject to regulatory approval. Occupancy rates of HUD
properties, as well as both occupancy and rental rates at non-HUD properties,
generally respond to market forces along with other properties in a region. The
Company believes that increased collected rents arising from either higher
occupancy or higher rents would have no material effect on overhead costs. There
can be no assurance that rent collections will increase or that costs will not
increase due to inflation or other causes.
The programs administered by HUD are expected to go through substantial
changes in the coming year. These proposed changes include provisions which
affect the manner in which HUD provides rental subsidies to many of the tenants
in HUD-regulated properties. The essence of these changes is to provide tenants
with greater freedom in the selection of where they live by decoupling the
subsidy from the project, as is the current practice, and providing the subsidy
directly to the tenant. The tenant can take this "rent voucher" and apply for
lease to an apartment that he selects. Additionally, the rental vouchers may
provide for less assistance than is currently in place. It is possible that the
combination of these proposed changes could result in lower rental revenue and
project cash flow from which management and other fees are derived; however, the
current proposals are not sufficiently specific to determine their actual impact
on such fees. Approximately 16% of the units managed participate in various HUD
programs.
<PAGE>
Liquidity And Capital Resources
The Company has several sources available for capital, primarily cash
generated from operations, distributions from partnerships and available credit
under the $200 million Revolving Credit Facility. As a result of its ability to
generate cash, and such additional sources, cash balances grew from $49.8
million at December 31, 1995 to $54.6 million at December 31, 1996. The Company
uses combined EBITDA and FFO as an indicator of its working capital generated
from operations. Combined EBITDA and FFO increased 90% from $32.9 million for
1995 to $62.4 million for 1996. The following chart specifically identifies the
sources of the combined EBITDA and FFO and how the numbers are derived for each
period.
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995
(in thousands)
<S> <C> <C>
Fee based services revenue...................... $215,623 $118,828
Interest........................................ 3,104 2,780
Other........................................... 2,327 1,424
221,054 123,032
Less:
Fee based services expenses.................. 164,830 85,707
Termination of agreement..................... -- 1,000
Administrative and other..................... 7,216 8,020
EBITDA - service company........................ 49,008 28,305
FFO............................................. 13,441 4,611
Combined EBITDA and FFO......................... 62,449 32,916
Interest expense................................ 12,918 7,049
Preferred dividends............................. 1,818 1,245
Net EBITDA...................................... $ 47,713 $ 24,622
</TABLE>
The Company's capital expenditure requirements for 1997 are projected to be
approximately $14 million primarily as a result of the Company's plan to change
automation platforms and computer equipment to a more sophisticated system
associated with the significant past growth and anticipated future growth. As
part of the Company's cash management program, investments are periodically made
in reverse repurchase agreements collateralized by obligations of the government
National Mortgage Association ("GNMA") with maturities of one to three weeks.
The Company generally does not take possession of the securities purchased under
agreements to resell. Insignia only invests in reverse repurchase agreements
which are short-term and collateralized by government backed securities, such as
GNMA or municipal bonds.
At December 31, 1996, the Company had cash and cash equivalents of $54.6
million as a result of positive cash flow from operations, distributions from
partnerships, and the proceeds from its debt sources. Management believes that
the Company's cash and capital resources will be sufficient to finance the
Company's operations for 1997 including its projected capital expenditure
requirements of $14 million, which is primarily a result of the Company's plan
to change automation platforms and computer equipment. The Company may require
additional financing for acquisition activities, depending on the level of such
activities, and is currently working with the banks in the Revolving Credit
Facility to increase the credit line. The amendments to the credit line would
increase the line from $200 million to $275 million, and would provide graduated
interest rates and fee structures based on rating levels obtained from Moody's
Investors and Standard & Poor.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in Item 14(a) of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
Part III
Item 10.
Directors and Executive Officers of the Registrant - incorporated herein by
reference to Registrant's definitive Proxy Statement to be filed in connection
with the Annual Meeting of Stockholders to be held April 30, 1997.
Item 11.
Executive compensation - incorporated herein by reference to Registrant's
definitive Proxy Statement to be filed in connection with the Annual Meeting of
Stockholders to be held April 30, 1997.
Item 12.
Security Ownership of Certain Beneficial Owners and Management -
incorporated herein by reference to Registrant's definitive Proxy Statement to
be filed in connection with the Annual Meeting of Stockholders to be held April
30, 1997.
Item 13.
Certain Relations and Related Transactions - incorporated herein by
reference to Registrant's definitive Proxy Statement to be filed in connection
with the Annual Meeting of Stockholders to be held April 30, 1997.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2):The response to this portion of Item 14 is submitted as a
separate section of this report - see Page F-2.
(3) Exhibits:See Exhibit Index contained herein.
(b): Report on Form 8-K filed in fourth quarter of 1996:
Form 8-K, dated December 9, 1996 disclosing pro forma financial statements
for the effect of the convertible preferred securities offering and certain
1995 acquisition transactions.
Form 8-K, dated December 10, 1996 disclosing financial statements of NPI
Property Management Corporation, National Property Investors, Inc. and
NPI-CL Management, L.P.
Form 8-K, dated December 10, 1996 disclosing financial statements for year
end 1995 for the following NPI and Century Properties limited partnerships:
National Property Investors II National Property Investors III
National Property Investors 4 National Property Investors 5 National
Property Investors 6 National Property Investors 7 National Property
Investors 8 Century Property Fund XIV Century Property Fund XV Century
Property Fund XVI Century Property Fund XVII Century Property Fund
XIVII Century Property Fund XVIII Century Property Fund XIX Century
Property Growth Fund XXII
(c) Exhibits: The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a separate
section of the report. See Page F-2.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/Andrew L. Farkas
---------------------------------------
Andrew L. Farkas
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
By: /s/Andrew L. Farkas By: /s/Robin L. Farkas
- - -- ------------------- --- ------------------
Andrew L. Farkas Robin L. Farkas
Chairman of the Board, President and Director
Chief Executive Officer
By: /s/James A. Aston By: /s/Merril M. Halpern
- - --- ----------------- --- --------------------
James A. Aston Merril M. Halpern
Chief Financial Officer Director
By: /s/Martha L. Long By: /s/Robert G. Koen
- - --- ----------------- --- -----------------
Martha L. Long Robert G. Koen
Senior Vice President - Director
Finance and Controller
By: /s/Michael I. Lipstein
---------------------------------------
Michael I. Lipstein
Director
By: /s/Buck Mickel
---------------------------------------
Buck Mickel
Director
By: /s/Robert J. Denison
---------------------------------------
Robert J. Denison
Director
<PAGE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, 14(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1996
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
GREENVILLE, SOUTH CAROLINA
F-1
<PAGE>
FORM 10-K - ITEM 14(a)(1) AND (2)
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Insignia Financial Group,
Inc. and subsidiaries are included in Item 8:
Insignia Financial Group, Inc. and subsidiaries
Consolidated balance sheets - December 31, 1996 and 1995
Consolidated statements of operations - Years ended December 31, 1996,
1995 and 1994
Consolidated statements of stockholders' equity - For the years ended
December 31, 1996, 1995 and 1994
Consolidated statements of cash flows - Years ended December 31, 1996,
1995 and 1994
Notes to consolidated financial statements
All other financial statements and schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and therefore
have been omitted.
F-2
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Stockholders and Board of Directors
Insignia Financial Group, Inc.
We have audited the accompanying consolidated balance sheets of Insignia
Financial Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's man agement. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those stan dards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insignia Financial
Group, Inc. and subsidiaries at Decem ber 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 14, 1997
F-3
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
----------------------------
(In thousands)
<S> <C> <C>
Assets
Cash and cash equivalents, including $47,255 (1996) and
$38,195 (1995) of reverse repurchase agreements $ 54,614 $ 49,846
Restricted cash - 6,282
Receivables 46,040 26,445
Property and equipment 12,083 7,700
Investments in real estate limited partnerships and
other securities 150,863 60,473
Apartment property 22,125 -
Property management contracts 122,915 88,816
Costs in excess of net assets of acquired businesses 75,627 3,169
Other assets 8,135 2,678
----------------------------
Total assets $492,402 $245,409
============================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 1,711 $ 1,497
Commissions payable 18,736 602
Accrued and sundry liabilities 40,741 25,619
Notes payable 49,840 32,996
Non-recourse mortgage note payable 19,300 -
Subordinated convertible note payable - 10,000
----------------------------
130,328 70,714
Redeemable convertible preferred stock - 15,000
Company-obligated mandatory redeemable convertible
preferred securities of a subsidiary trust 144,169 -
Minority interests in consolidated subsidiaries - 2,682
Stockholders' Equity:
Common Stock, Class A, par value $.01 per share - authorized
50,000,000 shares, issued and outstanding 28,857,097 (1996)
and 25,877,666 (1995) shares 289 259
Additional paid-in capital 189,657 137,160
Retained earnings 27,959 19,594
----------------------------
Total stockholders' equity 217,905 157,013
----------------------------
Total liabilities and stockholders' equity $492,402 $245,409
============================
<FN>
See accompanying notes.
</FN>
</TABLE>
F-4
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands except for per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Revenues:
Fee based services, including fees from
affiliated partnerships of $55,656 (1996),
$49,478 (1995) and $40,256 (1994) $215,623 $118,828 $72,576
Interest 3,104 2,780 1,457
Other 2,327 1,424 1,420
Apartment property 6,020 - -
-----------------------------------------
227,074 123,032 75,453
Costs and expenses:
Fee based services 164,830 85,707 49,090
Administrative 7,216 8,020 5,667
Apartment property 3,034 - -
Interest 12,918 7,049 742
Apartment property interest 1,812 - -
Depreciation and amortization 23,031 13,493 7,966
Apartment property depreciation 901 - -
Termination of employment agreements - 1,000 -
-----------------------------------------
213,742 115,269 63,465
Equity earnings-limited partnership interest 3,590 2,461 113
Minority interests in consolidated subsidiaries (1,976) (131) -
-----------------------------------------
Income before income taxes and extraordinary
item 14,946 10,093 12,101
Provision for income taxes 5,680 3,835 4,840
-----------------------------------------
Income before extraordinary item 9,266 6,258 7,261
Extraordinary item - loss on retirement of debt,
net of income taxes of $430 (1996) and $276
(1995) (702) (452) -
-----------------------------------------
Net income $ 8,564 $ 5,806 $ 7,261
=========================================
Per share amounts:
Income before extraordinary item $.29 $.22 $.35
=========================================
Net income $.27 $.20 $.35
=========================================
<FN>
See accompanying notes.
</FN>
</TABLE>
F-5
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Common Additional
Stock Stock Paid-in Retained
Class A Class B Capital Earnings
------------------------------------------------------
--------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 98 $ 2 $ 63,668 $ 7,772
Exercise of stock options - 56,404 shares
of common stock issued 1 - 184 -
Additional stock issuance costs - - (180) -
Net income for 1994 - - - 7,261
------------------------------------------------------
Balance at December 31, 1994 99 2 63,672 15,033
Issuance of 2,747,924 shares of
common stock 28 - 72,320 -
Exercise of stock options - 132,179 shares
of common stock issued 1 - 1,297 -
Conversion of Class B common
stock to Class A 2 (2) - -
Dividend on convertible preferred
stock - - - (1,245)
Net income for 1995 - - - 5,806
Adjustment for two-for-one stock split
12,938,833 shares 129 - (129) -
------------------------------------------------------
Balance at December 31, 1995 259 0 137,160 19,594
Exercise of stock options - 334,937 shares
of common stock issued 3 - 2,225 -
October 1995 issuance costs - - (79) -
Exercise of warrants - 17,700 shares of
common stock issued 1 - 141 -
Tax benefit of exercised options and warrants - - 637 -
Conversion of subordinated note payable -
1,117,732 shares of common stock issued 11 - 10,048 -
Conversion of redeemable preferred stock -
1,509,062 shares of common stock issued 15 - 15,075 -
Assumption of options in ESG acquisition - - 24,450 -
Dividend on convertible preferred
stock - - - (199)
Net income for 1996 - - - 8,564
------------------------------------------------------
Balance at December 31, 1996 $289 $ 0 $189,657 $27,959
======================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
-----------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 8,564 $ 5,806 $ 7,261
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,031 13,493 7,966
Apartment properties depreciation 901 - -
Equity in earnings of partnerships (3,590) (2,461) (113)
Extraordinary loss 1,132 728 -
Minority interest in consolidated
subsidiaries 1,976 131 -
Deferred income taxes (2,516) (820) (1,495)
Changes in operating assets and liabilities:
Accounts receivable (33,429) (1,234) (4,337)
Other assets (527) 133 (342)
Accrued compensation 7,326 1,635 485
Accounts payable and accrued expenses (5,108) (1,987) 4,230
Commissions payable 18,134 - -
-----------------------------------------
7,330 9,618 6,394
-----------------------------------------
Net cash provided by operating
activities 15,894 15,424 13,655
-----------------------------------------
Investing activities
Decrease (increase) in restricted cash, 6,282 (6,110) (6)
Additions to property and equipment,
net (6,364) (3,276) (3,421)
Payments made for acquisition of management
contracts and acquired businesses (97,248) (22,489) (6,201)
Proceeds from Balcor dispositions 8,231 - -
Purchase of real estate partnership interests (99,145) (23,955) (27,813)
Distributions from partnerships 12,347 11,130 -
Advances made under note agreements (8,077) (16,376) (2,869)
Investment in apartment properties, net of
acquired cash (8,005) - -
Collections on notes receivable 21,911 4,366 5,466
Other, net - - (307)
-----------------------------------------
Net cash used in investing activities (170,068) (56,710) (35,151)
-----------------------------------------
</TABLE>
F-7
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
-----------------------------------------
(In thousands)
<S> <C> <C> <C>
Financing activities
Proceeds from issuance of common stock $ - $ 71,558 $ -
Proceeds from issuance of preferred stock - 15,000 -
Proceeds from trust based convertible
preferred securities 149,500 - -
Proceeds from refinancing non-recourse
mortgage note 19,300 - -
Proceeds from exercise of stock options 2,519 1,298 185
Payment of preferred stock dividends (281) (1,072) -
Payment of trust based convertible preferred
securities distributions (1,619) - -
Distributions made to minority interests (432) (100) -
Investment made by minority interests - 2,651 -
Payments on notes payable (162,498) (121,731) (8,988)
Payments on non-recourse mortgage note (16,876) - -
Proceeds from notes payable 175,740 89,660 34,000
Debt and stock issuance costs (6,411) (2,728) (1,110)
-----------------------------------------
Net cash provided by financing activities 158,942 54,536 24,087
-----------------------------------------
Net increase in cash and cash equivalents 4,768 13,250 2,591
Cash and cash equivalents at beginning of year 49,846 36,596 34,005
-----------------------------------------
Cash and cash equivalents at end of year $ 54,614 $ 49,846 $ 36,596
=========================================
<FN>
See accompanying notes.
</FN>
</TABLE>
F-8
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Organization
Insignia Financial Group, Inc. (the "Company" or "Insignia") is a Delaware
corporation incorpo rated in July 1990. The Company is a fully integrated real
estate services company specializing in the ownership and operation of
securitized real estate assets throughout the United States. As a full service
real estate management organization, Insignia performs property management,
asset management, investor services, partnership accounting, real estate
investment banking, mortgage banking and real estate brokerage services for
various types of property owners.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned or majority-owned. All
significant intercompany balances and transactions have been eliminated. Certain
amounts for prior years have been reclassified to con form with the 1996
presentation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The amount of cash on deposit in federally insured institutions periodically
exceeds the limit on insured deposits. The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Restricted Cash
For 1995, restricted cash includes $6,025,000 in funded, undistributed payments
to tendering limited partners. These funds were distributed in 1996 (see Note
14).
F-9
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Loans Receivable
In 1995, the Company adopted Financial Accounting Standards Board Statement No.
114 ("FAS 114"), "Accounting by Creditors for Impairment of a Loan". Under the
new standard, the allow ance for credit losses related to loans that are
identified for evaluation in accordance with FAS 114 is based on discounted cash
flows using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the allowance
for credit losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans. The adoption of
FAS 114 had no material effect on the accompanying financial statements.
Investments in Partnerships
Investments in partnerships represent general partner interests of .2% to 4% in
certain limited partnerships, a 19.1% limited partnership interest in MAE and
limited partner interests in real estate limited partnerships ranging from 4% to
54%. The investments in real estate limited part nerships are accounted for by
the equity method. Equity in earnings from these partnerships amounted to
approximately $3,590,000, $2,461,000 and $113,000 for 1996, 1995 and 1994,
respectively. Equity in earnings for 1996 excludes the Company's equity interest
in extraordinary losses by the partnerships from early extinguishments of debt
of $1,132,000. The Company owns 54% of National Property Investors 4 ("NPI 4")
and therefore consolidates the accounts of this partnership.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
$1,815,000, $758,000 and $776,000 in advertising costs during 1996, 1995 and
1994, respectively.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation of
$5,681,000 (1996) and $3,915,000 (1995). Property and equipment consists of
office furniture and fixtures, data processing equipment, computer software, and
leasehold improvements.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets. Depreciation expense was $1,842,000
(1996), $1,444,000 (1995) and $956,000 (1994).
F-10
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Property Management Contracts and Costs in Excess of Net Assets Acquired
Property management contracts are stated at cost, net of accumulated
amortization of $46,020,000 (1996) and $26,885,000 (1995). The Company
capitalizes costs paid or payable to third parties in the successful pursuit of
acquiring management contracts. These contracts are amortized over three to
fifteen years based on the estimated lives of the contracts. All costs related
to unsuccessful attempts to acquire management contracts are expensed by the
Company.
The carrying value of the property management contracts is reviewed if the facts
and circum stances suggest that it may be impaired. If the review indicates that
the property management contract costs will not be recoverable, as determined by
the estimated profitability of the revenue generated by each portfolio over the
remaining amortization period, the Company's carrying value of the property
management contract costs are reduced by the estimated shortfall. No significant
contracts are estimated to be impaired as of December 31, 1996, although
termination in the future could adversely affect this estimate.
Costs in excess of net assets acquired are amortized by the straight-line method
over 15 to 25 years. Accumulated amortization is $2,553,000 (1996) and $780,000
(1995).
During 1996, the Company adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" (FAS 121), which requires
impairment losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets carrying amount. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. The
adoption of FAS 121 had no material effect on the accompanying financial
statements.
Loan Costs
The Company capitalizes costs paid to third parties for obtaining or refinancing
outstanding indebtedness. These costs are amortized over the term of the
respective outstanding debt. Prepaid points are deducted from the related debt
and are amortized over the term of the debt.
Revenue Recognition
Fee based services includes property management and commercial leasing fees,
partnership administration and asset management fees, loan origination and loan
servicing fees and investment banking fees. Such revenues are recorded when the
related services are performed, unless significant contingencies exist.
F-11
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No. 109,
"Accounting for Income Taxes". Under Statement 109, the liability method is used
in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Earnings Per Share
Primary net income per common share is based on 31,560,650 (1996), 22,681,158
(1995) and 20,556,758 (1994) weighted average number of shares of common stock
outstanding during the year and common stock equivalents of dilutive stock
options. Earnings are reduced by the divi dend on preferred stock when computing
earnings per share. All years have been restated for the two for one stock split
effected as a stock dividend on January 29, 1996. Fully diluted earnings per
common share is not presented since dilution is less than 3%.
3. Acquisitions
The Company and its affiliates have acquired control of or management rights to
33 portfolios of properties since 1990. The Company's significant acquisitions
during the last three years are discussed below.
On June 30, 1996, the Company acquired the business and substantially all of the
assets of Edward S. Gordon Company, Incorporated ("ESG"). ESG's services include
commercial real estate leasing, including tenant and landlord representation,
real estate consulting services and commercial real estate brokerage as well as
commercial property management in the New York City metropolitan area. At
closing, ESG managed approximately 25.5 million square feet of commercial space
comprised of 57 properties in New York, New Jersey and Connecticut. The purchase
price paid by Insignia for ESG was $73.8 million, consisting of $49.3 million in
cash, and $24.5 million of stock options for ESG employees. Additionally, the
Company has incurred $875,000 in acquisition costs and a loan of $5 million was
granted at the time of the purchase to Edward S. Gordon.
F-12
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Acquisitions (continued)
On June 30, 1996, the Company acquired the commercial real estate services
business of Paragon Group Property Services, Inc. ("Paragon"). Paragon's
services include property management, leasing and tenant improvement services
for managed properties as well as brokerage, fee development and real estate
consulting services performed for various institutional clients. At closing, the
acquired business managed and leased approximately 22 million square feet of
commercial space comprised of 166 properties located in 17 states. The purchase
price paid by Insignia for Paragon was $18.5 million in cash, plus an additional
$4 million in future contingent purchase price (without interest), and warrants
to acquire 50,000 shares of Class A Common Stock of Insignia. The warrants are
exercisable for a period of five years from closing at $29. Additionally, the
Company incurred $930,000 of acquisition costs and recorded a net deferred tax
liability of $1.2 million resulting from book and tax differences related to the
acquisition.
Both the ESG and Paragon acquisitions were accounted for as purchases. The
operations of Paragon and ESG have been included in the operations of the
Company since June 30, 1996.
On January 19, 1996, the Company purchased substantially all of the assets of
National Properties, Inc. ("NPI"), its property management affiliates and
certain of its limited partner interest in real estate limited partnerships for
an aggregate purchase price of approximately $116 million. In the purchase,
Insignia acquired (a) a significant percentage of the limited partnership
interests in 14 public real estate limited partnerships held by NPI, (b) all of
the issued and outstanding common stock of NPI, which in turn owned or
controlled, directly or indirectly, one or more of the general partners of
certain public real estate limited partnerships and certain private limited
partnerships, and (c) affiliates of NPI which provide real estate management
services, including not less than $13.5 million in net liquid assets. A deferred
tax liability of approximately $10.8 million was recorded in connection with the
acquisition. All of the funds used to purchase NPI were drawn on Insignia's
revolving credit facility with First Union National Bank of South Carolina. The
NPI acquisition was accounted for as a purchase. The operations of NPI have been
included in the operations of the Company since January 19, 1996.
On September 5, 1995, Insignia purchased the residential property management
business of Douglas Elliman-Gibbons & Ives and all of the outstanding stock of
Kreisel Company, Inc. (collectively "DEK"). Collectively, the acquired
operations manage approximately 300 properties containing approximately 54,000
residential units, all of which are within the metropolitan New York City market
and a substantial majority of which are within Manhattan. The purchase price
paid by Insignia for these businesses was $14.0 million, consisting of $13.0
million in cash, of which $10 million was financed with a short-term loan from
First Union National Bank of South Carolina, and $1.0 million in newly issued
shares of Insignia Common Stock (68,708 shares at $14.56 per share). A deferred
tax liability of $3.1 million was recorded as a result of book and tax
differences related to the acquisition. This acquisition was accounted for as a
purchase. The operations of DEK have been included in the operations of the
Company since September 5, 1995.
F-13
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Acquisitions (continued)
On May 1, 1995, Insignia acquired all of the outstanding common stock of
O'Donnell Property Services, Inc. ("OPSI") for consideration having an aggregate
value as of the date of acquisition of approximately $7.0 million, including
$2,000,000 in unsecured convertible notes and 55,556 shares of Insignia Common
Stock. Insignia acquired property management rights to approxi mately 23.6
million square feet of commercial, retail, office, and warehouse space located
princi pally in California and Nevada. Insignia entered into consulting
agreements with certain of the principal executives of OPSI for a period of five
years. Such executives also entered into non- competition agreements with
Insignia precluding their engaging in the business of commercial property
management in California or Nevada for a period of five years. The OPSI
acquisition resulted in a significant increase in commercial property management
by Insignia. The operations of OPSI have been included in the operations of the
Company since May 1, 1995. This acquisition was accounted for as a purchase.
On December 8, 1994, Insignia and certain of its affiliates purchased the stock
and assets of certain affiliates of Gordon Realty, Inc. In addition, a
wholly-owned subsidiary of MAE acquired an option to purchase all of the stock
of GII Realty, Inc., the parent of the general partners in thirteen real estate
limited partnerships, and pursuant to an exercise of such option, has acquired
100% of such stock. Insignia also acquired units of real estate limited
partnership interests in Consolidated Capital Growth Fund, Consolidated Capital
Institutional Properties and Consolidated Capital Institutional Properties/3 and
all of the outstanding capital stock of LP 6 Acceptance Corporation which
accepted for purchase pursuant to a tender offer units of limited partnership
interest in Consolidated Capital Properties VI. The aggregate purchase price
paid by the Company was approximately $42,501,000, which was financed by (a)
delivery of a $10 million convertible subordinated note of Insignia; (b) $16
million borrowed under Insignia's revolving credit facility with First Union
National Bank of South Carolina ("First Union") and (c) the balance from
Insignia's cash. This acquisition was accounted for as a purchase.
On November 4, 1994, Insignia acquired substantially all of the assets of
Allegiance Realty Group, Inc. ("Allegiance") which was accounted for as a
purchase. The assets purchased consisted of accounts receivable of $3,404,000,
fixed assets of $480,000, other assets of $134,000 and property management
contract rights of $29,783,000. The Company also assumed existing liabilities of
Allegiance of $784,000 and incurred an additional $250,000 in costs related to
this acquisition. The purchase price was $33,000,000 payable together with
interest at four percent per annum, and was paid in full on January 31, 1995
through amounts borrowed under Insignia's revolving credit facility with First
Union.
F-14
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Acquisitions (continued)
Pro forma unaudited results of operations for the years ended December 31, 1996
and 1995 assuming consummation of the ESG, Paragon and NPI acquisitions at
January 1, 1995, and assuming consummation of the DEK, OPSI, Gordon and
Allegiance acquisitions at January 1, 1994, is as follows (in thousands, except
per share data):
1996 1995 1994
-----------------------------------------
Revenues $284,120 $280,197 $140,843
Income before extraordinary item 8,923 7,664 8,039
Net income 8,221 7,212 8,039
Earnings per common share:
Income before extraordinary item .27 .24 .32
Net income .25 .22 .32
These results do not purport to represent the operations of the Company nor are
they necessarily indicative of the results that actually would have been
realized by the Company if the purchase of the operating entities had been in
effect the entire period.
The cost of the ESG (1996), Paragon (1996), NPI (1996), DEK (1995) and OPSI
(1995) acquisi tions are summarized as follows (in thousands):
1996 1995
----------------------------
Notes payable and common stock $ 26,525 $ 3,711
Accrued and sundry liabilities 4,298 1,789
Deferred tax liability, net 11,909 3,115
Cash paid at the closing dates 175,892 17,185
----------------------------
$218,624 $25,800
============================
The cost was allocated as follows:
1996 1995
----------------------------
Notes receivable $ 5,000 $ -
Property management contracts 63,260 24,324
Non-compete agreements 1,700 -
Goodwill 74,232 -
Other assets 594 1,476
Investment in limited partnership units 73,838 -
----------------------------
$218,624 $25,800
============================
F-15
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Reverse Repurchase Agreements
Periodically, the Company invests in reverse repurchase agreements. At December
31, 1996 and 1995, respectively, the Company had $12,952,000 and $25,000,000, in
reverse repurchase agreements with First Union National Bank of South Carolina
collateralized by obligations of the Government National Mortgage Association
("GNMA") with a weighted average interest rate of 5.8% (1996) and 5.3% (1995)
with maturities of one to three weeks. In addition, the Company has an agreement
with First Union whereby it purchases at par tax exempt municipal bonds with
variable interest rates. The bank has guaranteed repurchase of the bonds at par
with a 7-day notice from the Company. At December 31, 1996 and 1995,
respectively, the Company had $34,303,000 and $13,195,000 invested in such bonds
with a weighted average interest rate of 3.7% and 4.4%. All investments for 1996
and 1995 are reflected in the accompanying balance sheet at cost which
approximated market value as of such date and are included in cash and cash
equivalents.
The Company generally does not take possession of the securities purchased under
agreements to resell. The Company only invests in reverse repurchase agreements
which are short-term and collateralized by government backed securities, such as
GNMA or municipal bonds.
5. Receivables
December 31
1996 1995
------------------------
(In thousands)
Accounts receivable $ 9,899 $ 6,156
Commissions receivable 33,372 1,991
Income tax refund receivable - 1,703
Notes receivable:
Brokerage employees with interest at prime plus 1% 1,104 -
NPI (participation agreement) with interest rate of
prime plus 1.25% - 14,060
Outside entities with interest ranging from 8.0% to 11.2% 60 842
Affiliates with an interest rate of 8.0% 1,428 1,498
Chairman and executive officers with interest ranging
from 6% to 10% 177 195
------------------------
2,769 16,595
------------------------
$46,040 $26,445
========================
F-16
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Receivables (continued)
Accounts receivable consist primarily of management fees expected to be
collected in 1997. The accounts receivable are not collateralized, but credit
losses have been insignificant and within management's estimate. Commissions
receivable at December 31, 1996, consist of commercial lease commissions,
substantially from ESG operations of $29,814,000. The notes receivable are
collateralized by various partnership interests, assignment of notes and liens,
and real estate. In 1996, the NPI note was collected in full.
Principal collections on notes receivable are scheduled as follows (in
thousands):
Notes Commissions
Receivable Receivable
----------------------------
1997 $1,428 $25,428
1998 144 2,559
1999 195 4,867
2000 204 518
2001 213 -
Later years 585 -
----------------------------
$2,769 $33,372
============================
6. Investments in Real Estate Limited Partnerships
The Company has invested in 33 limited partnerships which own real estate
consisting primarily of apartments and commercial property throughout the United
States. The Company's limited part ner interests and ownership percentages of
such limited partnerships range from 4% to 54% as of December 31, 1996. These
limited partnerships own approximately 169 properties comprising 43,400
apartment units and 2,698,000 square feet in commercial space. The Company or an
affiliate serves as general partner in these limited partnerships.
F-17
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Investments in Real Estate Limited Partnerships (continued)
Summarized financial information from the date of acquisition of the
unconsolidated limited partnerships is as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------
1996 1995 1994
-----------------------------------------
(In thousands)
<S> <C> <C> <C>
Condensed Statements of Earnings Information
Revenues $262,251 $ 113,276 $2,864
Property operating expenses 143,306 62,376 1,802
Provision for impairment - 8,255 -
Depreciation 51,461 24,880 657
Interest 54,851 16,204 204
Administrative 11,199 7,732 133
-----------------------------------------
Total operating expenses 260,817 119,447 2,796
-----------------------------------------
Income (loss) from operations 1,434 (6,171) 68
Other gains 6,640 1,956 41
-----------------------------------------
Income (loss) before extraordinary items 8,074 (4,215) 109
Extraordinary items - loss on retirement
of debt (2,580) 126 110
-----------------------------------------
Net income (loss) $ 5,494 $ (4,089) $ 219
=========================================
</TABLE>
F-18
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Investments in Real Estate Limited Partnerships (continued)
December 31
1996 1995
----------------------------
(In thousands)
Condensed Balance Sheets Information
Cash and investments $ 115,708 $ 83,082
Receivables and deposits 27,211 29,929
Other assets 38,449 9,696
Real estate 1,476,516 645,016
Less accumulated depreciation (652,968) (332,471)
----------------------------
Net real estate 823,548 312,545
----------------------------
Total assets $1,004,916 $ 435,252
============================
Mortgage notes payable $ 725,894 $ 275,866
Other liabilities 48,149 20,759
----------------------------
Total liabilities 774,043 296,625
Partners' capital 230,873 138,627
----------------------------
$1,004,916 $ 435,252
============================
At December 31, 1996 the unamortized excess of the Company's investments over
the historical cost of the underlying net assets of the investees was
approximately $101,212,000, which has been attributed to the fair values of the
investees' underlying properties and is being depreciated over their useful
lives.
F-19
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Accrued and Sundry Liabilities
December 31
1996 1995
-------------------------
(In thousands)
Estimated liabilities for acquisitions $ 2,320 $ 2,574
Employee compensation 14,275 7,144
Deferred taxes 10,617 1,752
Accrued vacation 1,308 875
Deferred revenue 1,476 1,460
Employee insurance 1,337 935
Settlement of tender litigation (see Note 14) - 6,788
Other 9,408 4,091
-------------------------
$40,741 $25,619
=========================
8. Notes Payable
To better position the Company in the acquisition market, a $200,000,000
revolving credit facility was closed on December 11, 1995 involving a syndicate
of 13 national and international financial institutions. The revolving credit
facility bears interest at the annual rate of either prime plus 1% or LIBOR plus
2 1/4% at Insignia's option and terminates on December 11, 1998 unless extended.
All of the outstanding amounts are subject to the LIBOR based rate. The Company
also must pay an unused commitment fee of 50 basis points on the average unused
balance for each quarter. The facility is secured by a pledge of the stock of
all material subsidiaries and a negative pledge on all of the Company's service
fee contracts and limited partner interests in real estate limited partnerships.
The outstanding balance on the revolving credit facility as of December 31, 1996
is $43,000,000.
F-20
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Notes Payable (continued)
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31
1996 1995
---------------------------
(In thousands)
<S> <C> <C>
Revolving credit facility with interest only due quarterly at
LIBOR plus a margin of 2.25%. Final payment due date is
December 11, 1998 with possible extension to December 11,
2000. $43,000 $28,000
Unsecured convertible notes bearing interest at 10% with
quarterly interest payments. Principal is payable in full at
maturity date of April 30, 1998 along with any unpaid
interest. 2,000 2,000
Term note, secured by equipment, bearing simple interest at
a rate of prime plus 1/4% with principal being paid equally
in 60 monthly installments of $58,333 plus interest. Last
scheduled payment is January 15, 2000. 2,158 2,858
Note payable bearing simple interest of 6.25% per annum
with principal and interest paid monthly. Last scheduled
payment is December 19, 2000. 1,711 -
Unsecured nonrecourse note payable bearing simple interest
at a rate of 6.5% per annum. Note payments are payable in
installments upon the receipt of distributions from certain
partnerships. 430 -
Purchase money note at a rate per annum of 8% with
quarterly principal and interest payments. The note
matures on April 1, 2000 and is secured by assignment
of certain general and limited partnership interests. 2,568 3,233
</TABLE>
F-21
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Notes Payable (continued)
<TABLE>
<CAPTION>
December 31
1996 1995
-----------------------------
(In thousands)
<S> <C> <C>
Unsecured note bearing interest at 8% payable quarterly
beginning June 1993. Principal is payable in ten equal
semi-annual payments beginning June 1993. The note
matures in December 1997. $ 437 $ 875
Secured promissory note bearing simple interest of 7% per
annum due on the last day of the year in 5 equal installments
of principal plus interest. Maturity date is December 31,
1999. 60 80
-----------------------------
Subtotal 52,364 37,046
Less prepaid points (2,524) (4,050)
-----------------------------
$49,840 $32,996
=============================
</TABLE>
The non-recourse mortgage note payable of $19,300,000 bears interest at 7.33%
payable monthly. Principal is payable at maturity. Maturity date is November 1,
2003. The mortgage note is secured by the underlying apartment property.
The Company paid interest of approximately $11,346,000 (1996), $6,516,000 (1995)
and $255,000 (1994).
Scheduled principal maturities on notes payable after December 31, 1996 are as
follows (thousands of dollars):
1997 $ 2,496
1998 47,114
1999 2,005
2000 749
------------
$52,364
============
Certain of the note agreements contain various restrictive covenants requiring,
among other things, minimum consolidated net worth, minimum liquidity, and
various other financial ratios.
The Company is in compliance with its restrictive covenants.
F-22
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Subordinated Convertible Note Payable
In connection with the Gordon Realty acquisition in 1994, Insignia issued a
convertible subordi nated note of $10,000,000 with interest at 7.5%, due January
17, 2002. The note was converted to 1,117,732 shares of Class A Common Stock on
April 29, 1996. If the note had been converted as of January 1, 1996 and the
additional shares were issued at that date, 1996 supplemental earnings per
common share would have been unchanged assuming elimination of related interest
expense, net of the income tax effect.
10. Redeemable Cumulative Convertible Preferred Stock
On January 17, 1995, the Company sold 15,000 shares of redeemable cumulative
convertible preferred stock (voting) to Apollo Real Estate Advisors, LP
("Apollo") for $15,000,000. Divi dends accrue at the rate of 7.5% for the first
18 months, payable quarterly; thereafter dividends would accrue at 10%. On March
29, 1996, the Company notified Apollo of its intention to call for the
redemption of the $15,000,000 preferred stock. The preferred stock was converted
to 1,509,062 shares of common stock on April 29, 1996. If the preferred stock
had been converted as of January 1, 1996 and the additional shares were issued
at that date, 1996 supplemental earnings per common share would have been
unchanged assuming elimination of related dividends payable.
11. Trust Based Convertible Preferred Securities
In November 1996, Insignia Financing 1, a Delaware trust and a consolidated
wholly owned subsidiary of the Company (the "Trust"), issued and sold 2,990,000
shares of Trust Based Convertible Preferred Securities (the "Securities") with
an aggregate liquidation amount of $149,500,000, sold pursuant to exemptions
under the Securities Act of 1933, as amended, and the rules thereunder. All of
the outstanding common securities of the Trust are owned by the Company. The
sole asset of the Trust is the $154.1 million principal amount of 6.5 %
convertible subordinated debentures of the Company due September 30, 2016. The
Company has certain obligations relating to the Securities which amount to a
full and unconditional guarantee of the Trust's obligations under the
Securities. The debentures issued and the common securities purchased by the
Company are eliminated in the balance sheet. The Securities will mature on
September 30, 2016 and bear interest at the rate of 6.5% per annum, with
quarterly distributions payable in arrears. The Company has the option to defer
interest payments from time to time, not to exceed 20 consecutive quarters. The
Company's first distribution of $1,619,000 was made on December 31, 1996, and is
reflected in minority interests in the consoli dated statements. The Securities
are convertible into the Company's Class A Common Stock at $26.50 per share
beginning 60 days after the Securities first issuance date through September 30,
2016 or upon the Company's option to redeem the Securities after November 1,
1999. The Securities are structured such that the distributions are tax
deductible to the Company. The proceeds of the offering were used to pay down
current debt under the $200,000,000 revolving credit facility.
Discounts and offering costs of approximately $5,331,000, net of accumulated
amortization, at December 31, 1996, have been netted against the Securities and
are being amortized over the term of the Securities.
F-23
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Stockholders' Equity
In December 1995, the Company sold 1,000,000 shares of Class A Common Stock to
HFS Incorporated as part of a strategic alliance between the two companies. The
aggregate purchase price was $13,940,000 and was used by the Company to continue
reducing its outstanding debt balances and provide additional capital for
acquisitions.
In October 1995, the Company completed a public offering in which 3,850,000
shares of Class A Common Stock were sold by the Company and 1,350,000 shares
were sold by certain stock holders of the Company. The gross selling price of
the stock was $14.50 per share. The Company received approximately $57,600,000,
including proceeds from options exercised in anticipation of the offering, in
cash after the payment of certain underwriting costs. The proceeds were used to:
1) repay the majority of its long-term indebtedness, and 2) fund in part the NPI
acquisition. If the debt had been retired as of January 1, 1995 and the
additional shares were issued at that date, 1995 supplemental earnings per
common share amounts would have been as follows assuming elimination of related
interest expense, net of the income tax effect:
Income before extraordinary item $.29
Net income .27
The Company's ability to pay dividends is subject to restrictions contained in
its revolving credit facility. At December 31, 1996, the Company has
unrestricted stockholders' equity of $41,411,000.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock based compensation because, as discussed
below, the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options and warrants. Under APB 25, because the exercise price of the Company's
employee stock options and warrants equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company's 1992 Stock Incentive Plan (the "Plan") has authorized the grant of
options to management personnel for up to 4,666,666 shares of the Company's
common stock. The term of each option will be determined by the Company's Board
of Directors but will not be more than ten years from the date of grant. The
Plan may be terminated by the Board of Directors at any time. Options granted
typically have five year terms and vest ratably over a five-year period. Options
are granted at prices not less than 100% of the fair market value of the Common
Stock at the date of grant.
F-24
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Stockholders' Equity (continued)
The Company's 1995 Non-Employee Director Stock Option Plan (the "Directors
Plan") has authorized the grant of options for up to 500,000 shares of the
Company's Common Stock. The terms of the Directors Plan are similar to the Plan.
The Company assumed 1,482,879 options under Non-Qualified Stock Option
Agreements in connection with the acquisition of Edward S. Gordon Company
Incorporated and Edward S. Gordon Company of New Jersey, Inc. The options
granted are vested and have 5 year terms.
The Company had 2,971,966 (1996), 2,211,666 (1995) and 1,780,874 (1994) in
outstanding warrants for Class A Common Stock of the Company, with terms similar
to the Plan.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options and warrants granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options and warrants was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively, risk-free interest rate of 6.2%; no
dividend yield; volatility factors of the expected market price of the Company's
common stock of .40 and .42, and a weighted-average expected life of the options
and warrants of 3.25 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants which have no vesting restrictions and
are fully transferable. In addition, option valuation models required the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options and warrants have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and warrants.
For purposes of pro forma disclosures, the estimated fair values of the options
and warrants are amortized to expense over the options' and warrants' vesting
period. The Company's pro forma information follows (in thousands, except for
earnings per share information):
1996 1995
------------------------
Pro forma net income $3,154 $1,208
Pro forma earnings per share .10 .05
F-25
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Stockholders' Equity (continued)
Because FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until 1997.
Summaries of the Company's stock option and warrant activity, and related
information for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 5,904,884 $10.52 2,094,094 $ 7.62 871,524 $5.31
Granted 881,000 23.97 4,038,128 11.68 1,282,466 8.92
Granted in connection with
Edward S. Gordon
acquisition 1,482,879 5.79 - - - -
Exercised 342,599 6.97 214,804 4.10 59,896 1.74
Forfeited/canceled 94,606 12.69 12,534 9.46 - -
--------------------- ---------------------- ----------------------
Outstanding at end of
year 7,831,558 $11.26 5,904,884 $10.52 2,094,094 $7.62
Exercisable at end of
year 4,982,633 $9.02 2,795,972 $9.08 1,080,708 $7.76
Weighted-average fair value of
options granted during the
year $8.56 - -
</TABLE>
Significant option and warrant groups outstanding at December 31, 1996 and
related weighted average price and life information follows:
<TABLE>
<CAPTION>
Options/Warrants
Options/Warrants Outstanding Exercisable
- - ----------------------------------------------------------- ----------------------
Weighted Weighted
Weighted Average Average
Range of Number Average Exercise Number Exercise
Exercise Prices Outstanding Remaining Price Exercisable Price
Contractual Life
- - ----------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
$0.00 to $5.00 230,512 3 years $ 2.52 178,771 $ 2.40
$5.01 to $10.00 4,429,566 4 years 7.93 3,692,431 7.58
$10.01 to $15.00 2,302,730 5 years 13.71 992,431 13.77
$15.01 to $20.00 300,000 4 years 19.50 60,000 19.50
$20.01 to $25.00 69,750 5 years 21.05 - -
$25.01 to $29.00 499,000 4 years 27.19 59,000 28.48
------------- ------------ -----------------------
7,831,558 $11.26 4,982,633 $ 9.02
============= ============ =======================
</TABLE>
F-26
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
December 31
1996 1995
---------------------
(In thousands)
Deferred tax liabilities:
Management contracts and related costs $ (6,835) $ -
Cost in excess of net assets of acquired businesses (1,144) (1,192)
Tax over book depreciation (1,572) (881)
Partnership earnings differences (1,913) (1,587)
Compensation and benefits (601)
Other, net (376) -
---------------------
Total deferred tax liabilities (12,441) (3,660)
Deferred tax assets:
Management contracts and related costs - 715
Compensation and benefits - 903
Other, net 96 365
NOL acquired in purchase of Paragon 1,824 -
---------------------
Total deferred tax assets 1,920 1,983
Valuation allowance for deferred tax assets (96) (75)
---------------------
Deferred tax assets, net of valuation allowance 1,824 1,908
---------------------
Net deferred tax (liabilities) $(10,617) $(1,752)
=====================
F-27
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
Significant components of the provision for income taxes, including the
income tax provision for extraordinary items, are as follows:
1996 1995 1994
------------------------------------
(In thousands)
Current (payable):
Federal $ 6,889 $4,592 $ 5,354
State 877 (213) 981
------------------------------------
Total current 7,766 4,379 6,335
Deferred:
Federal (2,298) (650) (1,321)
State (218) (170) (174)
------------------------------------
Total deferred (2,516) (820) (1,495)
------------------------------------
$ 5,250 $3,559 $ 4,840
====================================
The reconciliation of income tax attributable to continuing operations computed
at the U.S. statutory rate to income tax expense is shown below (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- ---------------------
Amount Percent Amount Percent Amount Percent
--------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory
rate $4,835 35.0% $3,280 35.0% $4,235 35.0%
Effect of incremental
tax rates - - (102) (1.1) (100) (0.8)
State income taxes, net
of Federal tax benefit 688 5.0 367 3.9 490 4.1
Federal tax credits - - - - (55) (0.5)
Effect of permanent
differences (333) (2.4) 80 0.9 215 1.8
Tax effect of valuation
reserve - - 18 0.2 18 -
Other 60 0.4 (84) (.9) 37 0.4
--------------------- -------------------- ---------------------
$ 5,250 38.0% $3,559 38.0% $4,840 40.0%
===================== ==================== =====================
</TABLE>
Income taxes paid in 1996, 1995 and 1994 were $4,756,000, $7,048,000 and
$5,583,000, respec tively. Income taxes currently payable of $1,916,000 (1996)
are included in accrued and sundry liabilities. Income taxes currently
receivable of $1,703,000 (1995) are included in other receivables.
As a result of the acquisition of Paragon Group Properties Services, Inc., the
Company acquired use of net operating losses of approximately $5,000,000. These
losses carryforward to the calendar year ended December 31, 2010. A deferred tax
asset of $1,800,000 has been recorded on acquisition to account for this
carryforward. The carryforward is subject to provisions of the Internal Revenue
Code, which limit the use of the carryforward to the lesser of the value of the
stock multiplied by the Federal long-term tax-exempt rate or the subsidiary's
income.
F-28
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Commitments, Contingencies and Other Matters
Litigation
Gillett Family Trust, et al. v. Insignia Financial Group, et al. In April 1995,
six wholly-owned subsidiaries of Insignia commenced tender offers for limited
partner interests in six partnerships, Shelter Properties I Limited Partnership;
Shelter Properties II Limited Partnership; Shelter Properties III Limited
Partnership; Shelter Properties IV Limited Partnership; Shelter Properties V
Limited Partnership; and Shelter Properties VI Limited Partnership
(collectively, "Shelter Properties Partnerships"). In May 1995, in the United
States District Court for the District of South Carolina, certain limited
partners of the Shelter Properties Partnerships commenced a lawsuit, on behalf
of themselves, on behalf of a putative class of plaintiffs, and derivatively on
behalf of the partnerships, challenging the actions taken by defendants
(including Insignia, the acquiring entities and certain officers of Insignia) in
the management of the Shelter Properties Partnerships and in connection with the
tender offers and certain other matters.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation required supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
Insignia, which was paid on September 5, 1996, together with the payment of
plaintiff's attorney's fees and expenses.
Chipain, Tom, et al., v. Walton Street Capital Acquisition II, LLC, et al. In
May 1996, Walton Street Capital Acquisition II, MLLC ("Walton Street"), together
with certain Insignia affiliates, commenced tender offers for limited partner
interests in ten real estate limited partnerships syndicated by The Balcor
Company ("Balcor"). In May 1996, certain persons claiming to be holders of
limited partner interests commenced a lawsuit in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division, on behalf of themselves,
on behalf of a putative class of plaintiffs, and, as amended, derivatively on
behalf of the Balcor-syndicated partnerships, challenging the actions of the
defendants (including Insignia, an Insignia officer and certain affiliates,
Walton Street and the general partners of the Balcor-syndicated partnerships) in
con nection with the tender offers and certain other matters.
The complaint, as amended, contained allegations that the tender offers were
inadequate and coercive based, in part, upon information allegedly obtained by
Insignia in violation of its fiduciary duties. Defendants promptly moved to
dismiss the complaint and on June 5, 1996, the court dismissed the complaint as
to Insignia and Walton Street, with leave to replead. On June 11, 1996,
plaintiffs filed an amended class and derivative action complaint, repeating the
same allegations as in their initial complaint, and recasting some as
derivative, rather than direct class claims. Defendants moved to dismiss the
amended complaint and on June 18, 1996, the court again dismissed plaintiffs'
amended complaint as to Insignia and Walton Street.
F-29
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Commitments, Contingencies and Other Matters (continued)
On June 14, 1996, a second class and derivative suit, similar in material
respects to the Chipain litigation, was filed in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division. That complaint, entitled
Sandra Dee v. Walton Street Capital Acquisition II, LLC, et al., contained
substantially the same allegations as the Chipain complaints and asserted
addition ally that the tender offers violated certain state securities and
consumer statutes. Pursuant to the court's orders consolidating the Chipain and
Dee complaints with another action which does not name Insignia, a new amended
and consolidated class and derivative action complaint was filed on July 25,
1996. The plaintiffs in the Chipain action are not parties to this latest
complaint.
On August 16, 1996, Insignia moved to dismiss the amended and consolidated class
and deriva tive action complaint. The motion was heard by the court on September
27, 1996 at which time the court granted leave to the plaintiff to (i) withdraw
its pending complaint and (ii) serve a second amended and consolidated class and
derivative action complaint. On October 8, 1996, plaintiffs filed a second
amended and consolidated class and derivative action complaint which added
claims of alleged antitrust injury and unjust enrichment. On October 25, 1996,
Insignia moved to dismiss the second amended and consolidated class action
complaint.
On December 18, 1996, the court issued a decision granting Insignia's motion to
dismiss. By order dated January 7, 1997, the court dismissed the second amended
and consolidated class action complaint with prejudice. Plaintiffs filed a
notice of appeal in the December action on February 14, 1997.
The Company and certain subsidiaries are defendants in lawsuits arising in the
ordinary course of business. Such lawsuits are primarily insured claims arising
from accidents at managed properties. Claims may demand substantial compensatory
and punitive damages.
Management believes that the aforementioned lawsuits will be resolved without
material loss to the Company or its subsidiaries.
F-30
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Commitments, Contingencies and Other Matters (continued)
Environmental Liabilities
Under various Federal and state environmental laws and regulations, a current or
previous owner or operator of real estate may be required to investigate and
clean up certain hazardous or toxic substances or petroleum product releases at
the property, and may be held liable to a govern mental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with contamination. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs it incurs in connection with the contamination. The owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the site.
There can be no assurance that the Company, any of its affiliates, or any assets
owned or controlled by the Company or any of its affiliates currently are in
compliance with all of such laws and regulations, or that the Company or its
affiliates will not become subject to liabilities that arise in whole or in part
out of any such laws, rules, or regulations. Management is not currently aware
of any environmental liabilities which are expected to have a material adverse
effect on the Company's operations or financial condition.
Operating Leases
The Company leases office space and equipment under noncancelable operating
leases. Minimum annual rentals under operating leases for the five years ending
after December 31, 1996 are as follows (in thousands):
1997 $ 8,996
1998 8,410
1999 7,103
2000 6,542
2001 5,975
Thereafter 21,146
--------------
Total minimum payments required $58,172
==============
F-31
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Commitments, Contingencies and Other Matters (continued)
Rental expense was approximately $7,753,000 (1996), $4,726,000 (1995) and
$2,708,000 (1994).
Certain of the leases are subject to annual escalation based on the Consumer
Price Index or annual increases in operating expenses. The Company's
headquarters lease contains two renewal options of five years each.
Retirement Plan
The Company established a 401(k) savings plan covering substantially all of its
employees. The Company may make a contribution equal to 50% of the employees'
contribution up to a maxi mum of 3% of the employees' compensation and
participants fully vest in employer contributions after 7 years. The Company
expensed $1,506,000, $855,000 and $512,000 in contributions to the Plan during
1996, 1995 and 1994, respectively.
Department of Housing and Urban Development ("HUD")
Approximately 16% of the residential units managed by the Company were housing
projects financed under various government programs administered by the United
States Department of Housing and Urban Development ("HUD") As a result, certain
aspects of Insignia operations are subject to regulation by HUD. The programs
administered by HUD are currently under review by Congress. The proposed changes
to the HUD program would provide rental subsidy directly to the tenant rather
than the project. This would allow greater freedom in the selection of rental
housing. The tenant can take this "rent voucher" and apply for lease at an
apartment he selects. Additionally, the rental vouchers may provide for less
assistance than is currently in place. It is possible that the combination of
these proposed changes could result in lower rental revenue and project cash
flow from which management and other fees are derived; however, the current
proposals are not sufficiently specific to determine their actual impact on such
fees.
Property Dispositions
In November 1994, the Company acquired substantially all of the assets
(consisting primarily of management contracts) of Allegiance Realty Group, a
wholly owned subsidiary of the Balcor Company, Inc. ("Balcor"). Balcor announced
in the second quarter of 1996 its intention to sell a large portion of the
properties covered by these management contracts. The Company entered into an
agreement with Balcor whereby an advisory fee would be paid to the Company based
on the property sales for services rendered in the sales transactions. The
Advisory Agreements have terms of one year and the fees range from .75% to 1.25%
of the sales price of the property. The fees are and will continue to be paid in
cash after the close of each transaction. Presently, all unamortized management
contract costs, associated with the completed property sales have been fully
recovered. Management believes that the unamortized purchase price relating to
properties managed for Balcor properly reflects the asset value and that no
impairment exists.
F-32
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Commitments, Contingencies and Other Matters (continued)
Commitments
In connection with the NPI acquisition, Insignia assumed outstanding commitments
under arrangements established prior to the acquisition. Under the terms of the
arrangements, Insignia may be obligated to loan up to $500,000 to certain
partnerships ($2,600,000 in aggregate) and $150,000 to certain other
partnerships ($6,000,000 in aggregate) at interest rates not to exceed prime
plus 2%. At December 31, 1996, no amounts were outstanding related to the
arrangements.
15. Related Party Transactions
The Company holds a 19.1% limited partnership interest in Metropolitan Asset
Enhancement, L.P. ("MAE"). MAE was formed prior to 1991 originally to be the
principal vehicle for acquiring general partner interests in limited
partnerships owning real estate and real estate related assets that would be
managed or serviced by the Company. The Chairman, Chief Executive Officer, and
President of the Company is the sole stockholder of the general partner of MAE,
which has a 1% general partnership interest in MAE.
In August 1993, the Company entered into an agreement with MAE whereby: 1) the
Company agreed to assist MAE as its advisor and agent in connection with MAE's
acquisition, asset man agement, property management, and securitization
activities and in connection therewith to per form all services relating to the
foregoing; 2) the Company agreed to render to MAE full invest ment banking,
financial advisory, recapitalization, asset restructuring, securitization and
mortgage banking services (as sole compensation for the provision of such
services, the Company receives Incentive Management Fees and Transaction Fees,
as defined in this agreement); and 3) the Company and MAE agreed that, in the
event either obtains an opportunity to acquire interests in real estate or in
entities which own or control real estate, the Company will have the first right
to acquire any such interests. In addition, the Company and MAE have also agreed
that, if the Company elects not to acquire such interests, but MAE does elect to
acquire such interests and the Company elects to provide any financing to MAE
for such acquisition, then such financing shall be by means of loans, that will
bear interest at a rate equal to the rate then paid, or estimated it would pay,
on any revolving credit facility.
During 1996, 1995 and 1994, the Company was paid investment banking fees in the
amount of $860,000, $808,000 and $382,000 in connection with services rendered
to MAE and its various subsidiaries.
The Company has made loans to MAE or an MAE affiliate. All advances accrue
interest at prime plus 1% and repayment is made through cash generated by the
underlying property or investment. The outstanding balance of these advances was
$529,000 for 1996 and $613,000 for 1995, which are included in notes receivable
from affiliates.
F-33
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Industry Segments
The Company currently operates in principally two business segments: (1)
property and asset management and (2) financial services. The property and asset
management business segment manages multifamily, retail and commercial real
estate properties and provides asset management, investor relations and
partnership accounting services for affiliates and non-affiliates. The financial
services business segment originates loans on commercial properties and brokers
real estate and leasing for both affiliates and non-affiliates; and is
responsible for merger and acquisition activity for the Company, joint venture
formations, portfolio acquisitions, limited partner interest acquisitions and
real estate workouts.
The following table summarizes certain information by industry segment:
1996 1995 1994
------------------------------------
(In thousands)
Identifiable assets:
Property and asset management $251,764 $106,107 $ 82,823
Financial services 908 2,877 3,852
Corporate 59,851 75,952 49,671
Real estate 179,879 60,473 37,926
------------------------------------
$492,402 $245,409 $174,272
====================================
Gross revenues and equity earnings:
Property and asset management $205,574 $110,833 $ 64,208
Financial services 9,309 6,842 9,392
Corporate 5,744 5,357 1,853
Real estate 10,037 2,461 113
------------------------------------
$230,664 $125,493 $ 75,566
====================================
Operating profit (loss):
Property and asset management $ 28,168 $ 22,676 $ 16,706
Financial services (1,119) (3,509) 400
Real estate, net of minority interest 5,670 2,314 -
------------------------------------
32,719 21,481 17,106
Corporate expense, net (3,043) (4,339) (4,263)
Interest expense - corporate (12,918) (7,049) (742)
Interest expense - apartment properties (1,812) - -
------------------------------------
Income before income taxes and
extraordinary item $ 14,946 $ 10,093 $ 12,101
====================================
F-34
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Industry Segments (continued)
1996 1995 1994
------------------------------------
(In thousands)
Depreciation and amortization expense:
Property and asset management $ 22,478 $ 12,908 $ 7,494
Financial services 35 40 23
Corporate 518 545 449
------------------------------------
$ 23,031 $ 13,493 $ 7,966
====================================
Capital expenditures:
Property and asset management $ 6,243 $ 3,189 $ 2,660
Financial services 68 16 125
Corporate 469 202 1,116
Real estate 732 - -
------------------------------------
$ 7,512 $ 3,407 $ 3,901
====================================
Corporate assets include cash, receivables, property and equipment, and costs in
excess of net assets of acquired businesses. Corporate income consisted
primarily of interest income on short- term investments. Corporate expense
included general corporate administration and professional fees.
Within the financial services segment, the mortgage banking operation derived
approximately $731,350 (1996), $1,862,000 (1995) and $1,878,000 (1994) of its
revenues under an exclusive representation of a major life insurance company.
Property and asset management revenues include $16,189,000 (1996) and
$20,165,000 (1995) of property management revenues from properties controlled by
The Balcor Company and $1,520,000 (1996), $1,190,000 (1995) and $1,061,000
(1994) of amounts received from an agency that serves as an insurance broker for
various partnerships managed by the Company.
F-35
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
Fourth Third Second First
Total Quarter Quarter Quarter Quarter
------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $227,074 $77,870 $65,885 $43,098 $40,221
Net EBITDA 47,713 16,222 9,998 11,654 9,839
Equity earnings 3,590 518 732 886 1,454
Income before
extraordinary item 9,266 4,246 252 2,648 2,120
Net income 8,564 3,544 252 2,648 2,120
Per common share:
Income before extraordinary
items $.29 $.13 $.01 $.08 $.07
Net income .27 .11 .01 .08 .07
</TABLE>
Third quarter results of 1996 include a $935,000 charge for unsuccessful
acquisition costs.
<TABLE>
<CAPTION>
1995
------------------------------------------------------------
Fourth Third Second First
Total Quarter Quarter Quarter Quarter
------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $123,032 $36,233 $31,092 $29,146 $26,561
Net EBITDA 24,622 5,776 5,605 6,415 6,826
Equity earnings 2,461 83 700 1,216 462
Income before
extraordinary items 6,258 954 1,030 1,953 2,321
Net income 5,806 502 1,030 1,953 2,321
Per common share:
Income before extraordinary
items $.22 $.02 $.03 $.08 $.09
Net income .20 .01 .03 .08 .09
</TABLE>
Second quarter results of 1995 include a $1,000,000 charge for the termination
of an agreement.
F-36
<PAGE>
Insignia Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. Fair Values of Financial Instruments
The fair value estimates of financial instruments presented below are not
necessarily indicative of the amounts the Company might pay or receive in actual
market transactions. Potential taxes and other taxes have also not been
considered in estimating fair value. The carrying amount reported on the balance
sheet for cash and restricted cash approximates its fair value. Receivables
reported on the balance sheet consist of property and lease commission
receivables, income tax refunds, and various note receivables. The property
receivables and income tax refunds approximate their fair values. Lease
commissions receivable are carried at their discounted present value, therefore
the carrying amount and fair value amount are the same. The notes receivable
earn interest at either fixed or variable rates. Interest rates approximate
current market interest rates for similar instruments, therefore, the carrying
amount approximates their fair value. Notes payable were analyzed individually
to verify that carrying value is fair value. The fixed rate note balances are
insignificant and have no quotable market prices, however, carrying value is
believed to approx imate market value. The large revolving credit facility note
carries a variable rate of interest, and therefore, its carrying value adjusted
for the prepaid points approximates its fair value. The Trust Based Convertible
Preferred Securities were issued in November 1996 and the Company believes the
fair value has not changed significantly since issuance.
Summary
The carrying amounts and fair values of the Company's financial instruments at
December 31, are as follows (amounts in thousands):
1996 1995
--------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------- -------------------
Cash and cash equivalents $ 54,614 $ 54,614 $49,846 $49,846
Restricted cash - - 6,282 6,282
Receivables 12,668 12,668 26,445 26,445
Commissions receivable 33,372 33,372 - -
Notes payable 49,840 54,864 32,996 38,896
Trust based convertible preferred secur149,500 149,500 - -
Subordinated convertible note payable - - 10,000 21,389
Redeemable cumulative convertible
preferred stock - - 15,000 28,875
F-37
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
3.1 Certificate of Incorporation of Insignia Financial Group, Inc., as
amended.(i)
3.2 By-Laws of Insignia Financial Group, Inc.(i)
4.1 Certificate of Designation of Series A Preferred Stock Par Value $.01 Per
Share of Insignia Financial Group, Inc.(iii)
4.2 Certificate of Correction to Certificate of Designation of Series A
Preferred Stock Par Value $.01 Per Share of Insignia Financial Group,
Inc.(iii)
4.3 Securities Purchase Agreement dated as of May 27, 1992 by and among
Insignia Financial Group, Inc., Metropolitan Acquisition Partners V, L.P.
and IFG Limited Liability Company. Incorporated by reference to Exhibit
28.3 to Form 8-K of Registrant dated June 2, 1992.
4.4 Warrant Agreement dated as of January 17, 1995 between Insignia Financial
Group, Inc. and APTS Partners, L.P.(vi)
4.5 Certificate of Designation, Preferences and Rights of the 7.5% Step- Up
Rate Cumulative Convertible Preferred Stock of Insignia Financial Group,
Inc.(vi)
4.6 Warrant No. 32 to purchase 50,000 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to Marvin Chudnoff (vii)
4.7 Warrant issued to APTS Partners, L.P. to purchase 300,000 shares of
Insignia Financial Group, Inc. Class A Common Stock. (vii)
4.8 Warrant issued to APTS Partners, L.P. to purchase 137,500 shares of
Insignia Financial Group, Inc. Class A Common Stock. (vii)
4.9 Warrant No. 12 to purchase 46,800 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to The J & P O'Donnell Revocable Trust. (vii)
4.10 Warrant No. 13 to purchase 23,400 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to The D & S Grant Revocable Trust. (vii)
4.11 Warrant No. 14 to purchase 23,400 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to The J & C Westling Revocable Trust. (vii)
4.12 Warrant No. 15 to purchase 23,400 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to Douglas C. Neff. (vii)
4.13 Warrant No. 16 to purchase 13,000 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to John G. Combs. (vii)
4.14 Convertible Promissory Note from Insignia Financial Group, Inc. to Douglas
C. Neff in the amount of $400,000. (vii)
4.15 Convertible Promissory Note from Insignia Financial Group, Inc. to The J &
C Westling Revocable Trust in the amount of $400,000. (vii)
4.16 Convertible Promissory Note from Insignia Financial Group, Inc. to The D &
S Grant Revocable Trust in the amount of $400,000. (vii)
4.17 Convertible Promissory Note from Insignia Financial Group, Inc. to The J &
P O'Donnell Revocable Trust in the amount of $800,000. (vii)
4.18 Warrant No. 33 to purchase 63,750 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to Gotham Partners, L.P. (vii)
4.19 Warrant No. 34 to purchase 38,958 shares of Insignia Financial Group, Inc.
Class A Common Stock issued to APTS V, L.L.C. (vii)
4.20 Declaration of Trust of Insignia Financing I, dated as of October 4, 1996,
among First Union Bank of Delaware, as Delaware Trusteee, and John K. Lines
and Ronald Uretta, Trustees incorporated herein by
<PAGE>
reference to Exhibit 4.1 of Form S-3 of the Registrant filed on December
10, 1996.
4.21 Amended and Restated Declaration of Trust of Insignia Financial I, dated as
of November 1, 1996, among Insignia Financial Group, Inc., as Sponsor,
First Union National Bank of South Carolina, as Property Trustee, First
Union Bank of Delaware, as Delaware Trustee and Andrew L. Farkas, John K.
Lines and Ronald Uretta as Regular Trustees incorporated herein by
reference to Exhibit 4.2 of Form S-3 of the Registrant filed on December
10, 1996.
4.22 Indenture for the 6.5% Convertible Subordinated Debentures, dated as of
November 1, 1996, between Insignia Financial Group, Inc., as Issuer, and
First Union National Bank of South Carolina, as Trustee incorporated herein
by reference to Exhibit 4.3 of Form S-3 of the Registrant filed on December
10, 1996.
4.23 Warrant Agreement dated as of June 30, 1996 by and between Paragon Group,
L.P. and Insignia Financial Group, Inc. incorporated herein by reference to
Exhibit 4.1 of Form 8-K of Registrant filed on July 15, 1996.
4.24 Warrant No. 38 to Purchase up to 50,000 Shares of Class A Common Stock of
Insignia Financial Group, Inc. issued to Paragon Group, L.P. incorporated
herein by reference to Exhibit 4.2 of Form 8-K of Registrant filed on July
15, 1996.
10.1 Asset Purchase Agreement dated September 28, 1994 among Insignia Allegiance
Management, Inc., Allegiance Realty Group, Inc., certain ARG subsidiaries,
and The Balcor Company, incorporated by reference to Exhibit 2.1 to Form
8-K of Registrant on November 4, 1994.
10.2 Stock and Asset Purchase Agreement dated December 8, 1994 by and among
Insignia Financial Group, Inc., Insignia Management Corporation, MAE-ICC,
Inc., Gordon Realty, Inc., GII Realty, Inc., LP Acceptance Corporation, LP
2 Acceptance Corporation, LP 3 Acceptance Corporation, LP 6 Acceptance
Corporation, Coventry Properties, Inc. and Partnership Services, Inc.
incorporated by reference to Exhibits of Schedule 13D of Registrant on
December 19, 1994.
10.3 Insignia 1992 Stock Incentive Plan, as amended through March 28, 1994 and
November 13, 1995. Incorporated by reference to Exhibit B to Proxy
Statement of Registrant filed on April 22, 1996.
10.4 Stockholders Agreement, dated May 27, 1992, by and among Metropolitan
Acquisition Partners IV, L.P., Metropolitan Acquisition Partners V, L.P.,
Andrew L. Farkas, IFG Limited Liability Company, and Insignia Financial
Group, Inc.(iv)
10.5 Registration Rights Agreement, dated May 27, 1992, by and between IFG
Limited Liability Company and Insignia Financial Group, Inc.(iv)
10.6 Registration Rights Agreement, dated April 15, 1993, by and between
Metropolitan Acquisition Partners, IV, L.P. and Insignia Financial Group,
Inc. incorporated by reference to Exhibit 10.41 to Form S-1 of Registrant
dated August 16, 1993.
10.7 Registration Rights Agreement, dated April 15, 1993, by and between
Metropolitan Acquisition Partners V, L.P. and Insignia Financial Group,
Inc. incorporated by reference to Exhibit 10.42 to Form S-1 of Registrant
dated August 16, 1993.
10.8 Registration Rights Agreement, dated June 30, 1993, by and among Security
Properties Investments, Inc. and Insignia Financial Group, Inc.
incorporated by reference to Exhibit 2.2 of Form 8-K of Registrant dated
July 14, 1993.
10.9 Agreement dated April 15, 1993 by and between Metropolitan Asset
Enhancement, L.P. and Insignia Financial Group, Inc. incorporated by
<PAGE>
reference to Exhibit 10.43 to Form S-1 of Registrant dated August 16, 1993.
10.10Employment Agreement dated September 1, 1993, by and between Insignia
Financial Group, Inc. and Andrew L. Farkas incorporated by reference to
Exhibit 10.44 to Amendment No. 1 to Form S-1 of Registrant dated September
23, 1993.
10.11Employment Agreement dated September 1, 1993, by and between Insignia
Financial Group, Inc. and James A. Aston incorporated by reference to
Exhibit 10.59 to Amendment No. 1 to Form S-1 of Registrant dated September
23, 1993.
10.12Employment Agreement dated September 1, 1993, by and between Insignia
Financial Group, Inc. and Jeffrey L. Goldberg incorporated by reference to
Exhibit 10.60 to Amendment No. 1 to Form S-1 of Registrant dated September
23, 1993.
10.13Employment Agreement dated September 1, 1993, by and between Insignia
Financial Group, Inc. and Ronald Uretta incorporated by reference to
Exhibit 10.61 to Amendment No. 1 to Form S-1 of Registrant dated September
23, 1993.
10.14Employment Agreement dated September 1, 1993, by and between Insignia
Financial Group, Inc. and John F. Jacques incorporated by reference to
Exhibit 10.45 to Amendment No. 1 to Form S-1 of Registrant dated September
23, 1993.
10.15Stock Exchange Agreement and Plan of Reorganization made June 30, 1993,
among Security Properties Investments, Inc., Insignia Financial Group,
Inc., and ISPMC, Inc. incorporated by reference to Exhibit 2.2 of Form 8-K
of Registrant dated July 14, 1993.
10.16Registration Rights Agreement dated as of June 20, 1993 by and among
Security Properties Investments, Inc. and Insignia Financial Group, Inc.
incorporated by reference to Exhibit 2.3 to Form 8-K of Registrant dated
July 14, 1993.
10.17Stock Pledge Agreement dated as of June 30, 1993, between Security
Properties Investments, Inc. and Insignia Financial Group, Inc.
incorporated by reference to Exhibit 2.3 of Form 8-K of Registrant dated
July 14, 1993.
10.18Promissory Note dated as of December 14, 1994 of Gleichman & Company,
Housing/State of the Art, Inc. and Pamela W. Gleichman in favor of Insignia
Financial Group, Inc. in the amount of $400,000.(vi)
10.19Promissory Note dated March 18, 1994 of RTL Holdings, Ltd. in the amount
of $400,000 in favor of Insignia Financial Group, Inc.(vi)
10.20Lease Agreement by and between 15 S. Main, Inc. and Insignia Financial
Group, Inc. dated May 18, 1994.(vi)
10.21Lease Agreement by and between Metropolitan Life Insurance Company and
Insignia Financial Group, Inc. dated October 13, 1994.(vi)
10.22Amended and Restated Purchase Agreement by and among SHL Properties
Acquisition Partners, Ltd. and SHL Properties Management, Ltd., SHL
Properties Acquisition Corp. II, SHL Properties Acquisition Corp. III,
certain shareholders, IH Limited Partnership and Insignia Financial Group,
Inc. dated March 18, 1994.(vi)
10.23Purchase Agreement by and among Hampton Realty Partners, L.P., Hampton
UREF Acquisition Corp., IH, Inc., Davidson Diversified Properties, Inc. and
Insignia Management Group, L.P. dated August 8, 1994.(vi)
10.24Asset Purchase Agreement by and among Insignia Commercial Group, Inc., The
Rooney Company and Insignia Financial Group, Inc. dated May 31, 1994.(vi)
<PAGE>
10.25Stock Purchase Agreement by and among MAE GP Corporation, Insignia
Management Corporation, Insignia Financial Group, Inc., Capital Realty
Group Management, Inc., Capital Realty Group Properties, Inc., Capital
Realty Group Properties II, Inc., Capital Realty Group Corp. and
International Property Management, Inc. dated September 21, 1994.(vi)
10.26Stock and Warrant Purchase Agreement dated as of January 17, 1995 by and
between Insignia Financial Group, Inc. and APTS Partners, L.P.(vi)
10.27Employment Agreement as of January 1, 1994 by and among Insignia Financial
Group, Inc. and Frank M. Garrison.(vi)
10.28Partnership Units Purchase Agreement dated as of August 17, 1995 among
Registrant, Insignia NPI, L.L.C., Riverside Drive L.L.C., DeForest Ventures
I L.P., DeForest Ventures II, L.P., QAL Associates, QAL II Associates and
the other parties named therein incorporated herein by reference to Exhibit
No. 2.1 to Form 8-K of Registrant dated August 17, 1995.
10.29Management Purchase Agreement dated as of August 17, 1995 among
Registrant, Insignia Management Corporation, Insignia Management Group,
L.P., Insignia NPI, L.L.C., and other parties named therein incorporated
herein by reference to Exhibit No. 2.2 to Form 8-K of Registrant dated
August 17, 1995.
10.30Stock Purchase Agreement dated as of August 17, 1995 among Registrant,
IFGP Corporation and the other parties named therein incorporated herein by
reference to Exhibit No. 2.3 to Form 8-K of Registrant dated August 17,
1995.
10.31Limited Liability Company Agreement of Riverside Drive L.L.C. dated as of
August 17, 1995 between Insignia NIP, L.L.C. and QALA V incorporated herein
by reference to Exhibit No. 2.4 to Form 8-K of Registrant dated August 17,
1995.
10.32Master Indemnity Agreement dated as of August 17, 1995 among Registrant,
Insignia NPI, L.L.C., Insignia Management Corporation, Insignia Management
Group, L.P., Riverside Drive L.L.C., and the other parties named therein
incorporated herein by reference to Exhibit No. 2.5 to Form 8-K of
Registrant dated August 17, 1995.
10.33Purchase Agreement dated September 5, 1995 by and between Douglas
Elliman-Gibbon & Ives and Insignia Management Services-New York, Inc.
incorporated herein by reference to Exhibit No. 2.1 to Form 8-K of
Registrant dated September 5, 1995.
10.34Option Exercise and Stock Purchase Agreement dated September 5, 1995 by
and between Neil Kreisel and Insignia Management Services-New York, Inc.
incorporated herein by reference to Exhibit No. 2.2 to Form 8-K of
Registrant dated September 5, 1995.
10.35Employment Agreement dated as of September 5, 1995 by and between Insignia
Financial Group, Inc., Kreisel Company, Inc. and Neil J. Kreisel
incorporated herein by reference to Exhibit No. 2.3 to Form 8-K of
Registrant dated September 5, 1995.
10.36Purchasing Services Agreement dated as of November 30, 1995 between HFS
Incorporated and Compleat Resource Group, Inc. incorporated herein by
reference to Exhibit No. 10.1 to Form 8-K of Registrant dated December 19,
1995.
10.37Stock Purchase Agreement dated as of November 30, 1995 between HFS
Incorporated and Insignia Financial Group, Inc. incorporated herein by
reference to Exhibit No. 10.2 to Form 8-K of Registrant dated December 19,
1995.
10.38Registration Rights Agreement dated as of November 30, 1995 between HFS
Incorporated and Insignia Financial Group, Inc. incorporated
<PAGE>
herein by reference to Exhibit No. 10.3 to Form 8-K of Registrant dated
December 19, 1995.
10.39Credit Agreement dated as of December 11, 1995 by and among Insignia
Financial Group, Inc. as Borrower, the Lenders referred to therein, First
Union National Bank of South Carolina as Administrative Agent and Lehman
Commercial Paper, Inc. as Syndication Agent incorporated herein by
reference to Exhibit No. 10.1 to Form 8-K of Registrant dated January 29,
1996.
10.40Form of Indemnification Agreement by and between Insignia Financial Group,
Inc. and each of its Directors and Executive Officers as of May 25, 1995.
(vii)
10.41Agreement made and entered into as of the 16th day of August 1995, by and
among Insignia Financial Group, Inc., Insignia Management Group, L.P.,
Pamela W. Gleichman, Gleichman & Company, Inc., Housing/State of the Art,
Inc., and Franklin Oxford Associates. (vii)
10.42First Amendment to Agreement made and entered into as of the 16th day of
August 1995 by and among Insignia, IMG and Sellers. (vii)
10.43Amended and Restated Promissory Note dated as of December 14, 1994 wherein
Gleichman & Company promises to pay Insignia the principal amount of
$428,312.74. (vii)
10.44Management Rights Agreement made and entered into as of the 15th day of
September 1995 by and among Insignia Financial Group, Inc., Insignia
Management Group, L.P., PropSys, Compass Ventures, Inc., Stephen L.
Griswold and Lee F. Griswold. (vii)
10.451995 Registration Right Agreement dated as of May 1, 1995 by and among
Insignia Financial Group, Inc. and The D & S Grant Revocable Trust. (vii)
10.461995 Registration Right Agreement dated as of May 1, 1995 by and among
Insignia Financial Group, Inc. and The J & P O'Donnell Revocable Trust.
(vii)
10.471995 Registration Right Agreement dated as of May 1, 1995 by and among
Insignia Financial Group, Inc. and Douglas C. Neff. (vii)
10.481995 Registration Right Agreement dated as of May 1, 1995 by and among
Insignia Financial Group, Inc. and The J & C Westling Revocable Trust.
(vii)
10.491995 Registration Right Agreement dated as of May 1, 1995 by and among
Insignia Financial Group, Inc. and John G. Combs. (vii)
10.50Registration Rights Agreement dated as of May 10, 1995 by and between
Insignia Financial Group, Inc. and APTS Partners, L.P. regarding the
warrant to purchase 300,000 shares of Insignia Financial Group, Inc. Class
A Common Stock. (vii)
10.51Registration Rights Agreement dated as of May 10, 1995 by and between
Insignia Financial Group, Inc. and APTS Partners, L.P. regarding the
warrant to purchase 137,500 shares of Insignia Financial Group, Inc. Class
A Common Stock. (vii)
10.52Amended and Restated Registration Rights Agreement dated as of May 10,
1995 by and between James A. Aston and Insignia Financial Group, Inc. (vii)
10.53Amended and Restated Registration Rights Agreement dated as of May 10,
1995 by and between Frank M. Garrison and Insignia Financial Group, Inc.
(vii)
10.54Amended and Restated Registration Rights Agreement dated as of May 10,
1995 by and between Jeffrey L. Goldberg and Insignia Financial Group, Inc.
(vii)
<PAGE>
10.55Amended and Restated Registration Rights Agreement dated as of May 10,
1995 by and between John F. Jacques and Insignia Financial Group, Inc.
(vii)
10.56Amended and Restated Registration Rights Agreement dated as of May 10,
1995 by and between Ronald Uretta and Insignia Financial Group, Inc. (vii)
10.57Stock Purchase Agreement made as of the 28th day of June 1995 by and
between Farallon Capital Partners, L.P. and M-VI Limited Liability Company.
(vii)
10.58Stock Purchase Agreement made as of the 28th day of June 1995 by and
between Farallon Capital Institutional Partners, L.P. and M-VI Limited
Liability Company. (vii)
10.59Stock Purchase Agreement made as of the 28th day of June 1995 by and
between Farallon Capital Institutional Partners II, L.P. and M-VI Limited
Liability Company. (vii)
10.60Stock Purchase Agreement made as of the 28th day of June 1995 by and
between Tinicum Partners, L.P. and M-VI Limited Liability Company. (vii)
10.61Registration Rights Agreement made as of June 28, 1995 between Insignia
Financial Group, Inc. and Farallon Capital Partners, L.P. (vii)
10.62Registration Rights Agreement made as of June 28, 1995 between Insignia
Financial Group, Inc. and Farallon Capital Institutional Partners, L.P.
(vii)
10.63Registration Rights Agreement made as of June 28, 1995 between Insignia
Financial Group, Inc. and Farallon Capital Institutional Partners II, L.P.
(vii)
10.64Registration Rights Agreement made as of June 28, 1995 between Insignia
Financial Group, Inc. and Tinicum Partners, L.P. (vii)
10.65Stock Purchase Agreement made as of June 28, 1995 by and between APTS
Partners IV-AB, L.P. and M-VI Limited Liability Company. (vii)
10.66Registration Rights Agreement made as of June 28, 1995 between Insignia
Financial Group, Inc. and APTS IV-AB, L.P. (vii)
10.67Stock Purchase Agreement made as of June 28, 1995 by and between Blackacre
Capital Group, L.P. and M-VI Limited Liability Company. (vii)
10.68Registration Rights Agreement made as of June 28, 1995 between Insignia
Financial Group, Inc. and Blackacre Capital Group, L.P. (vii)
10.69Note Purchase Agreement made as of the 7th day of June 1995 by and among
APTS Partners III, L.P., Gordon Investments, Inc. and Insignia Financial
Group, Inc. (vii)
10.70Registration Rights Agreement dated as of June 7, 1995 between Insignia
Financial Group, Inc. and APTS Partners III, L.P. (vii)
10.71Separation Agreement dated as of April 20, 1995 by and between Marvin H.
Chudnoff and Insignia Financial Group, Inc. (vii)
10.72Employment Agreement dated as of July 20, 1995 by and between Insignia
Financial Group, Inc. and Thomas R. Shuler. (vii)
10.73Amendment No. 1 dated as of February 19, 1996 to the Employment Agreement
by and between Insignia Financial Group, Inc. and Thomas R. Shuler. (vii)
10.74Amendment No. 1 dated as of April 1, 1995 to the Employment Agreement by
and between Insignia Financial Group, Inc. and James A. Aston. (vii)
10.75Amendment No. 1 dated as of June 20, 1995 to the Employment Agreement by
and between Insignia Financial Group, Inc. and Andrew L. Farkas. (vii)
<PAGE>
10.76Amendment No. 1 dated as of April 1, 1995 to the Employment Agreement by
and between Insignia Financial Group, Inc. and Frank M. Garrison. (vii)
10.77Amendment No. 1 dated as of April 1, 1995 to the Employment Agreement by
and between Insignia Financial Group, Inc. and John F. Jacques. (vii)
10.78Amendment No. 1 dated as of April 1, 1995 to the Employment Agreement by
and between Insignia Financial Group, Inc. and Ronald Uretta. (vii)
10.79Registration Rights Agreement dated as of December 5, 1995 by and between
Insignia Financial Group, Inc. and APTS V, L.L.C. (vii)
10.80Assignment and Consent Agreement dated as of December 15, 1995 by and
among APTS Partners IV-AB, L.P., Blackacre Capital Group, L.P., Farallon
Capital Institutional Partners, L.P., Farallon Capital Institutional
Partners II, L.P., Farallon Capital Partners, L.P., Tinicum Partners, L.P.,
Cerberus Partners, L.P., Ultra Cerberus Ltd., Pequod Investments, L.P.,
Cerberus International Ltd. of Stockholders Agreement dated as of May 27,
1992 by and among Metropolitan Acquisition Partners IV, L.P., Metropolitan
Acquisition Partners V, L.P., Andrew L. Farkas, M-VI Limited Liability
Company and Insignia Financial Group, Inc. (vii)
10.81Assignment and Consent Agreement dated as of December 15, 1995 by and
among Metropolitan Acquisition Partners IV, L.P., Insignia Financial Group,
Inc., Andrew L. Farkas, Charterhouse Equity Partners, L.P., Northern &
Midland Nominees Limited and M-VI Limited Liability Company. (vii)
10.82Settlement Agreement by and between IAP GP Corporation, MAE GP
Corporation, Insignia Financial Group, Inc., Angeles Acceptance Directives,
Inc., Angeles Realty Corporation, Angeles Realty Corporation II, Angeles
Securitization Corporation, Angeles Corporation, Angeles Real Estate
Corporation and the Official Committee of Creditors Holding Unsecured
Claims in the Chapter 11 case of Angeles Corporation. (vii)
10.83Stock Purchase Agreement by and among Insignia Commercial Group, Inc.,
Insignia Financial Group, Inc., Insignia Commercial Group West, Inc.,
O'Donnell Property Services, Inc., John D. O'Donnell, Donald S. Grant,
Douglas C. Neff, James R. Westling, The J & P O'Donnell Revocable Trust,
The D & S Grant Revocable Trust, The J & C Westling Revocable Trust dated
as of March 30, 1995. (vii)
10.84Amendment No. 2 dated as of March 1, 1996 to the Employment Agreement by
and between Insignia Financial Group, Inc. and Andrew L. Farkas.
10.85Amendment No. 2 dated as of February 20, 1996 to the Employment Agreement
by and between Insignia Financial Group, Inc. and James A. Aston.
10.86Amendment No. 2 dated as of February 20, 1996 to the Employment Agreement
by and between Insignia Financial Group, Inc. and Frank M. Garrison.
10.87Employment Agreement dated as of January 1, 1996 by and between Insignia
Financial Group, Inc. and John K. Lines.
10.88Amended and Restated Employment Agreement by and between Insignia
Financial Group, Inc. and John F. Jacques dated as of December 19, 1996.
10.89Amendment No. 2 dated as of February 20, 1996 to the Employment Agreement
by and between Insignia Financial Group, Inc. and Ronald Uretta.
10.90Purchase Agreement dated as of December 31, 1996 between GSSW-REO
Ownership Corporation, GSSW Limited Partnership and Southwest Associates,
L.P. with respect to all of the General Partnership and Limited Partnership
Interests of Certain Limited Partnerships.
<PAGE>
10.91Agreement of Limited Partnership of Southwest Associates, L.P. dated as of
the 31st day of December 1996.
10.92Registration Rights Agreement, dated November 1, 1996, among Insignia
Financing I, and Insignia Financial Group, Inc. and Lehman Brothers, Inc.,
Dillon, Read & Co., Inc. Goldman, Sachs & Co., and A.G. Edwards & Sons,
Inc., as Initial Purchasers incorporated herein by reference to Exhibit
10.1 to Form S-3 of Registrant filed on December 10, 1996.
10.93Asset and Stock Purchase Agreement dated as of June 17, 1996 among
Insignia Financial Group, Inc., Insignia Buyer Corporation, Edward S.
Gordon Company Incorporated, Edward S. Gordon Company of New Jersey, Inc.
and Edward S. Gordon incorporated herein by reference to Exhibit 2.1 of
Form 8-K of Registrant dated July 1, 1996.
10.94Employment Agreement dated as of June 17, 1996 by and among Insignia
Financial Group, Inc., Insignia Buyer Corporation and Edward S. Gordon
incorporated herein by reference to Exhibit 10.2 of Form 8-K of Registrant
dated July 1, 1996.
10.95Employment Agreement dated as of June 17, 1996 by and among Insignia
Financial Group, Inc., Insignia Buyer Corporation and Anthony M. Saytanides
incorporated herein by reference to Exhibit 10.3 of Form 8-K of Registrant
dated July 1, 1996.
10.96Employment Agreement dated as of June 17, 1996 by and among Insignia
Financial Group, Inc., Insignia Buyer Corporation and Stephen B. Siegel
incorporated herein by reference to Exhibit 10.4 of Form 8-K of Registrant
dated July 1, 1996.
10.97Agreement dated as of May 31, 1996 among Paragon Group, L.P., Texas
Paragon Management Partners, L.P., Paragon Group Property Services, Inc.
and Insignia Commercial Group, Inc. incorporated herein by reference to
Exhibit 10.1 of Form 8-K of Registrant dated July 1, 1996.
11. Statement re: Computation of Per Share Earnings.
21. List of Subsidiaries.
23. Consent of Independent Auditors to Registration Statement on Form S-8 of
Insignia 1992 Stock Incentive Plan.
27. Financial Data Schedule
(i) Filed as an exhibit to Registration Statement on Form S-4 of Insignia
Financial Group, Inc. (then MetSouth Financial Corporation), Registration
No. 33-38094, on December 7, 1990, and incorporated herein by reference.
(ii) Filed as an Exhibit to Annual Report on Form 10-K of Insignia Financial
Group, Inc., for the year ended December 31, 1990 on September 27, 1991 and
incorporated herein by reference.
(iii)Filed as an Exhibit to Annual Report on Form 10-K of Insignia Financial
Group, Inc. for the year ended December 31, 1991, and incorporated herein
by reference.
(iv) Filed as an Exhibit to Registration Statement on Form S-1 of Insignia
Financial Group, Inc., Registration No. 33-67486, on October 13, 1993 and
incorporated herein by reference.
(v) Filed as an Exhibit to Annual Report on Form 10-K of Insignia Financial
Group, Inc. for the year ended December 31, 1993, and incorporated herein
by reference.
(vi) Filed as an Exhibit to Annual Report on Form 10-K of Insignia Financial
Group, Inc. for the year ended December 31, 1994, and incorporated herein
by reference.
(vii)Filed as an Exhibit to Annual Report on Form 10-K of Insignia Financial
Group, Inc. for the year ended December 31, 1995, and incorporated herein
by reference.
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 to Employment Agreement (the "Agreement"), made as of
March 1, 1996, is by and between Insignia Financial Group, Inc., a Delaware
corporation with an office at One Insignia Financial Plaza, Post Office Box
1089, Greenville, South Carolina 29602 (the "Company"), and Andrew Lawrence
Farkas, an individual with an office at One Insignia Financial Plaza, Post
Office Box 1089, Greenville, South Carolina 29602 (the "Executive").
Background
The Company and the Executive entered into an Employment Agreement dated as
of September 1, 1993 (the "Original Agreement") and an Amendment No. 1 to
Employment Agreement dated as of July 20, 1995 (the "Amendment"). The Company
and the Executive now desire to amend the Original Agreement, as amended by the
Amendment.
Statement of Agreement
In consideration of the foregoing, the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Defined Terms. Capitalized terms used in this Agreement but not
otherwise defined herein shall have the meanings ascribed thereto in the
Original Agreement, as amended.
Section 2. Amendment of Section 3(f) of the Original Agreement. Section
3(f) of the Original Agreement, as amended, is hereby amended by replacing
subsection (viii) and adding a new subsection (ix) to Section 3(f):
"(viii) During the Employment Period, in so long as the Executive shall
travel more than eight (8) days per month (average during the course of a
calendar year), the Company shall maintain a corporate jet aircraft no
smaller than a Hawker Sidley Model 700 such as that in use by the Company
as of the date of this Agreement. The Executive shall have unlimited use of
the Company's aircraft during his employment by the Company. The aircraft
shall also be available for use by the other executives and directors of
the Company, subject to availability. In addition, the Company shall
provide the Executive with the use of the aircraft (or a similar chartered
aircraft in the event that the Company no longer has full time use of an
aircraft) for fifty (50) hours per year for two (2) years subsequent to the
Executive's termination by the Company for any reason other than a
Termination For Cause.
<PAGE>
(ix) Use of a full time car and driver both in Greenville, South Carolina
and New York, City, New York, which car and driver shall also be available
for use by all other executives of the Company as the need shall arise."
Section 3. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (m) to Section 3:
"In the event of a Death Termination Event, Disability Termination Event,
Termination Without Cause or upon the occurrence of a Change In Control or
Stock Change In Control, all options and warrants then held by and granted
to the Executive will immediately vest and be exercisable by the Executive;
provided however that in the event of a Death Termination Event or
Disability Termination Event, any options shall only remain exercisable for
a period of one year following such termination event (but not later than
the scheduled expiration date of such options)".
Section 4. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given, at the address of such party set forth in the preamble of this
Agreement (or to such other address as such party shall have furnished in
writing in accordance with the provisions of this Section). Notice to the Estate
shall be sufficient if addressed to the Executive as provided in this Section.
Any notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof.
Section 5. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
Section 6. Binding Effect. The Executive's rights and obligations under
this Agreement shall not be transferrable by assignment or otherwise, such
rights shall not be subject to commutation, encumbrance or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors.
<PAGE>
Section 7. Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
Section 8. Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
Section 9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions hereof.
Section 11. Affirmation. The parties hereto agree that the Original
Agreement, and the Amendment, as amended hereby, are in full force and effect on
and as of the date hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ John K. Lines
-----------------------
Name: John K. Lines
Title: General Counsel and Secretary
/s/ Andrew L. Farkas
--------------------
ANDREW LAWRENCE FARKAS
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 to Employment Agreement (this "Agreement"), made as of
February 20, 1996, is by and between Insignia Financial Group, Inc., a Delaware
corporation with an office at One Insignia Financial Plaza, Post Office Box
1089, Greenville, South Carolina 29602 (the "Company"), and James A. Aston, an
individual with an office at One Insignia Financial Plaza, Post Office Box 1089,
Greenville, South Carolina 29602 (the "Executive").
Background
The Company and the Executive entered into an Employment Agreement dated as
of September 1, 1993 (the "Original Agreement") and an Amendment No. 1 to
Employment Agreement (the "Amendment") dated as of April 1, 1995. The Company
and the Executive now desire to amend the Original Agreement, as amended.
Statement of Agreement
In consideration of the foregoing, the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Defined Terms. Capitalized terms used in this Agreement but not
otherwise defined herein shall have the meanings ascribed thereto in the
Original Agreement, as amended.
Section 2. Amendment of Section 1 of the Original Agreement. Section 1 of
the Original Agreement, as amended, is hereby amended by deleting "September 1,
1997" and inserting in its place "June 30, 1998".
Section 3. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (l) to Section 3:
"The Executive shall receive a bonus in the amount of $250,000.00 on the
occurrence of a Change In Control, Stock Change In Control or other
material change to the equity capital structure of the Company prior to the
end of the Employment Period and an additional bonus of $250,000.00
("Additional Bonus") on the date which is eighteen (18) months following
the date of the occurrence of such event if, and only if, the Executive is
still employed by the Company. If the Executive is terminated by the
Company for cause, including, but not limited to, a Termination Without
Cause, the Executive shall no longer be entitled to and shall
<PAGE>
have no claim for the Additional Bonus. For purposes of this Section 3 (l),
whether or not a material change to the equity capital structure of the
Company has occurred will be determined by a vote of the majority of the
disinterested members of the Board of Directors of the Company acting in
good faith."
Section 4. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (m) to Section 3:
In the event of a Death Termination Event, Disability Termination Event, or
upon the occurrence of a Change In Control or Stock Change In Control, all
options and warrants then held by and granted to the Executive will
immediately vest and be exercisable by the Executive; provided however that
in the event of a Death Termination Event or Disability Termination Event,
any options shall only remain exercisable for a period of one year
following such termination event (but not later than the scheduled
expiration date of such options). In the event of a Termination Without
Cause, the Compensation Committee of the Board of Directors, shall in its
sole and absolute discretion, determine whether or not to vest all options
and warrants granted to the Executive upon the occurrence of such
Termination Without Cause.
Section 5. Amendment of Section 6 of the Original Agreement. Section 6(b),
6(d) and 6(e) of the Original Agreement, as amended, are hereby amended by
deleting in each Subsection "September 1, 1997" and inserting in its place "June
30, 1998".
Section 6. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given, at the address of such party set forth in the preamble of this
Agreement (or to such other address as such party shall have furnished in
writing in accordance with the provisions of this Section). Notice to the Estate
shall be sufficient if addressed to the Executive as provided in this Section.
Any notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof.
Section 7. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
<PAGE>
Section 8. Binding Effect. The Executive's rights and obligations under
thisAgreement shall not be transferrable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors.
Section 9. Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
Section 10. Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
Section 11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions hereof.
Section 13. Affirmation. The parties hereto agree that the Original
Agreement, and the Amendment, as amended hereby, are in full force and effect on
and as of the date hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ John K. Lines
----------------------
Name: John K. Lines
Title: General Counsel and Secretary
/s/ James A. Aston
------------------
JAMES A. ASTON
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 to Employment Agreement (this "Agreement"), made as of
February 20, 1996, is by and between Insignia Financial Group, Inc., a Delaware
corporation with an office at One Insignia Financial Plaza, Post Office Box
1089, Greenville, South Carolina 29602 (the "Company"), and Frank M. Garrison,
an individual with an office at One Insignia Financial Plaza, Post Office Box
1089, Greenville, South Carolina 29602 (the "Executive").
Background
The Company and the Executive entered into an Employment Agreement dated as
of September 1, 1993 (the "Original Agreement") and an Amendment No. 1 to
Employment Agreement (the "Amendment") dated as of April 1, 1995. The Company
and the Executive now desire to amend the Original Agreement, as amended.
Statement of Agreement
In consideration of the foregoing, the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Defined Terms. Capitalized terms used in this Agreement but not
otherwise defined herein shall have the meanings ascribed thereto in the
Original Agreement, as amended.
Section 2. Amendment of Section 1 of the Original Agreement. Section 1 of
the Original Agreement, as amended, is hereby amended by deleting "September 1,
1997" and inserting in its place "June 30, 1998".
Section 3. Amendment of Section 2 of the Original Agreement. Section 2 of
the Original Agreement, as amended, is hereby amended by deleting the third
sentence of Section 2(b).
Section 4. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by deleting the third
sentence of subsection (d)(i) in its entirety and renumbering subsection (d)(ii)
as subsection (d)(i).
Section 5. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (g) to Section 3:
<PAGE>
"The Executive shall receive a bonus in the amount of $250,000.00 on
the occurrence of a Change In Control, Stock Change In Control or
other material change to the equity capital structure of the Company
prior to the end of the Employment Period and an additional bonus of
$250,000.00 ("Additional Bonus") on the date which is eighteen (18)
months following the date of the occurrence of such event if, and only
if, the Executive is still employed by the Company. If the Executive
is terminated by the Company for cause, the Executive shall no longer
be entitled to and shall have no claim for the Additional Bonus. For
purposes of this Section 3 (g), whether or not a material change to
the equity capital structure of the Company has occurred will be
determined by a vote of the majority of the disinterested members of
the Board of Directors of the Company acting in good faith."
Section 6. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (h) to Section 3:
In the event of a Death Termination Event, Disability Termination
Event, or upon the occurrence of a Change In Control or Stock Change
In Control, all options and warrants then held by and granted to the
Executive will immediately vest and be exercisable by the Executive;
provided however that in the event of a Death Termination Event or
Disability Termination Event, any options shall only remain
exercisable for a period of one year following such termination event
(but not later than the scheduled expiration date of such options). In
the event of a Termination Without Cause, the Compensation Committee
of the Board of Directors, shall in its sole and absolute discretion,
determine whether or not to vest all options and warrants granted to
the Executive upon the occurrence of such Termination Without Cause.
Section 7. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (i) to Section 3:
(i) Automobile Allowance. In addition to the other benefits provided
to the Executive hereunder, and at the sole cost and expense of the
Company, an annual automobile allowance in an amount to be determined
in the sole discretion of the Chief Executive Officer of the Company,
but in no event less than ten thousand dollars ($10,000) per year.
Section 8. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (j) to Section 3:
(j) Term Life Insurance. The cost of term life insurance, providing a
death
<PAGE>
benefit of three million dollars ($3,000,000) upon the life of the
Executive, the beneficiaries and owner of which shall be designated by
the Executive and which term life insurance shall be upon terms and
conditions, and in form and substance available at the time, and
otherwise reasonably satisfactory to the Executive in his sole
discretion and which term life insurance shall be paid for by the
Company during the Employment Period at the Company's sole cost and
expense.
Section 9. Amendment of Section 6 of the Original Agreement. Section 6(b),
6(d) and 6(e) of the Original Agreement, as amended, are hereby amended by
deleting in each Subsection "September 1, 1997" and inserting in its place "June
30, 1998".
Section 10. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given, at the address of such party set forth in the
preamble of this Agreement (or to such other address as such party shall have
furnished in writing in accordance with the provisions of this Section). Notice
to the Estate shall be sufficient if addressed to the Executive as provided in
this Section. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
Section 11. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
Section 12. Binding Effect. The Executive's rights and obligations under
this Agreement shall not be transferrable by assignment or otherwise, such
rights shall not be subject to commutation, encumbrance or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors.
Section 13. Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
Section 14. Headings. The headings in this Agreement are solely for
<PAGE>
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
Section 15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions hereof.
Section 17. Affirmation. The parties hereto agree that the Original
Agreement, and the Amendment, as amended hereby, are in full force and effect on
and as of the date hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ John K. Lines
---------------------
Name: John K. Lines
Title: General Counsel and Secretary
/s/ Frank M. Garrison
---------------------
FRANK M. GARRISON
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), made as
of December 19, 1996, is by and between INSIGNIA FINANCIAL GROUP, INC., a
Delaware corporation with an office at One Insignia Financial Plaza, Post Office
Box 1089, Greenville, South Carolina 29602 (the "Company"), and JOHN F. JACQUES,
an individual with an office at 102 Woodmont Boulevard, Nashville, Tennessee
(the "Employee").
Background
The Company desires to amend and restate the Employee's current Employment
Agreement, dated September 1, 1993, as amended, and the Employee is willing to
serve in the employ of the Company upon the amended and restated terms and
conditions provided in this Agreement.
Statement of Agreement
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. Employment. The Company hereby agrees to employ the Employee,
and the Employee hereby accepts such employment, in each case upon the terms and
conditions set forth herein, for a period commencing on the date of this
Agreement and ending on December 31, 2000, subject to earlier termination as set
forth herein (such period, as it may be so terminated, being referred to herein
as the "Employment Period").
SECTION 2. Duties and Services.
(a) Offices. In the performance of his duties hereunder, the Employee shall
report to and shall be responsible to only the Chief Executive Officer, or his
designee, and the Board of Directors of the Company. The Employee agrees to his
employment as described in this Section 2 and, except as otherwise set forth in
Section 2(d) below, agrees to devote substantially all of his time and efforts
to the performance of his duties hereunder and to Metropolitan Asset
Enhancement, L.P. and its subsidiaries. The Employee shall be available to
travel as the needs of the business of the Company and the duties of the
Employee require.
(b) Location of Office. Except as otherwise set forth in Section 2(d)
below, during the Employment Period, the Employee's office shall be located in
the office of the Company in Nashville, Tennessee, and the Company will provide
the Employee with a secretary reasonably acceptable to him.
(c) Primary Responsibilities. From the date of this Agreement through
December 31, 1996 (the "Transition Date"), the Employee shall have such
responsibilities as are assigned to him by either the Board of Directors of the
Company or the Chief Executive Officer of the Company,
<PAGE>
in each case subject to the approval of the Chief Executive Officer of the
Company or the Board of Directors of the Company. The Employee will be an
executive officer of the Company and will carry the title of "Executive Managing
Director" through the Transition Date.
(d) Responsibilities After Transition Date. On the Transition Date, the
employee will resign as "Executive Managing Director" of the Company and will
thereafter be considered a non- executive employee of the Company through the
end of the Employment Period. The Employee acknowledges and agrees that
effective as of the Transition Date, the Employee's Indemnification Agreement
with the Company shall terminate, in accordance with its terms. Following the
Transition Date, the employee will devote that amount of his time and effort
reasonably necessary to transition his pre-Transition Date responsibilities and
perform such other duties reasonably assigned to him in good faith by either the
Board of Directors or the Chief Executive Officer of the Company and consistent
with his other activities as set forth in Section 6 hereof. In addition,
effective as of the Transition Date, the Company shall no longer be obligated to
provide the Employee with an office or a secretary.
(d) Board Membership; Current Titles. On the date of this Agreement, the
Employee will resign from the Company's Board of Directors, from the Board of
Directors of any of the Company's affiliates on which the Employee serves as
director, from the Office of the Chairman of the Company and as the Chairman,
Chief Executive Officer, and President of Compleat Resource Group, Inc.
(f) Office Space. Employee acknowledges and agrees that, effective as of
the Transition Date, the Company shall no longer be obligated to provide the
Employee with an office or a secretary. Following the Transition Date, to the
extent the Company has unused office space available in its Nashville, Tennessee
office, the Company agrees to make certain office space designated by the
Company, in its sole and absolute discretion, available to the Employee without
any rental cost to the Employee; provided, however, the Company may, for any
reasonable reason and upon thirty (30) days prior written notice to the
Employee, terminate the Employee's right to use such office space and,
thereafter, the Employee shall be responsible for securing any office space
required by the Employee and paying the costs and expenses associated therewith.
SECTION 3. Compensation. As full compensation for his services hereunder,
the Company shall pay, grant, issue, or give, as the case may be, to the
Employee the following:
(a) Base Salary. A base salary at the rate of $242,000 per year per annum
(the "Initial Base Salary"), which Initial Base Salary shall be paid to the
Employee in accordance with the customary payroll policy of the Company as in
effect from time to time. Such Initial Base Salary shall be paid to the Employee
through June 30, 1998 ("Initial Base Salary Period"). On July 1, 1998, the
Employee's Initial Base Salary will be reduced to $70,000 per annum ("New Base
Salary") for the remainder of the Employment Period, and such New Base Salary
will be paid to the Employee in accordance with the customary payroll policy of
the Company as in effect from time to time. The Company reserves the right, in
its sole and absolute discretion, to pay any or all of the Initial Base Salary
and New Base Salary due through the end of the Employment Period at any time in
advance. On the date the 1996 Bonus (as defined in Section 3(c) below), if any,
is
<PAGE>
paid to Employee, the amount of such 1996 Bonus minus twenty-five thousand
($25,000) dollars multiplied by 120% will be subtracted from the total aggregate
amount of the remaining Initial Base Salary and remaining New Base Salary due to
Employee during the remaining term of this Agreement (the result of such
calculation is hereinafter defined as "Total Adjusted Base Salary"). The Total
Adjusted Base Salary will then be paid to the Employee on a pro rata basis over
the remaining term of the Employment Period in accordance with the customary
payroll policy of the Company as in effect from time to time.
(b) Special Compensation. Annual special compensation of $34,694 ("Special
Compensation") for seven (7) years ("Special Compensation Period"), payable on
March 15 of each of such years commencing on March 15, 1997, of which up to
$23,939 may be paid in the form of forgiveness of debt on certain loan
obligations of the Employee to the Company. The Company and the Employee
understand and agree that, notwithstanding any provision of this Agreement to
the contrary, the provisions of this Section 3(b) relating to such Special
Compensation shall survive any termination of this Agreement for any reason
whatsoever.
(c) Annual Bonus. An annual discretionary bonus for fiscal year 1996 up to
an amount not to exceed $325,000 (the "1996 Bonus"), the amount of which shall
be determined by the Board of Directors of the Company, acting at its sole and
absolute discretion, and such 1996 Bonus, if any, shall be paid to the Employee
prior to the expiration of ninety (90) days after the end of the 1996 fiscal
year. The Employee may be eligible for a bonus in any other fiscal year during
the Employment period at the sole discretion of the Board of Directors and/or
Chief Executive Officer.
(d) Fringe Benefit Program. In addition to the other benefits provided to
the Employee hereunder, and to the extent permitted by law, participation in any
fringe benefit program introduced generally to employees of the Company,
including, without limitation, pension, profit sharing, stock purchase, savings,
bonus, disability, life insurance, health insurance, hospitalization, dental,
deferred compensation, and other plans and policies authorized on the date
hereof or in the future.
(e) Vacations. Paid vacations and leaves of absence in accordance with the
then regular procedures of the Company governing executives, which policy
currently provides four weeks of paid vacation per year on a non-cumulative
basis.
(f) Certain Vesting. In the event of a Death Termination Event, Disability
Termination Event, or upon the occurrence of a Change in Control or Stock Change
in Control (as defined in Andrew L. Farkas' Employment Agreement, dated as of
September 1, 1993, as amended), all options and warrants then held by and
granted to the Employee will immediately vest and be exercisable by the
Employee; provided, however, that in the event of a Death Termination Event or
Disability Termination Event, any options shall only remain exercisable for a
period of one (1) year following such termination event (but not later than the
scheduled expiration date of such options). In the event of a Termination
Without Cause, all options and warrants granted to the Employee up to the time
of such Termination Without Cause shall vest, but shall only remain
<PAGE>
exercisable for a period of ninety (90) days following such termination event
(but, in no event, later than the scheduled expiration date of such options).
(d) Expense Reimbursement. From the date of this Agreement, up to and
including the Transition Date, reimbursement of the Employee for all
out-of-pocket expenses incurred by him in connection with the performance of his
duties hereunder, upon the presentation of appropriate documentation therefore,
in accordance with the then regular policies and procedures of the Company.
Following the Transition Date, the Employee will be reimbursed only for out-of-
pocket expenses that are pre-approved by an appropriate executive officer of the
Company.
SECTION 4. Non-Competition; Non-Solicitation; and Confidentiality.
(a) Non-Competition. In view of the unique and valuable services it is
expected the Employee will render to the Company, the Employee's knowledge
of the customers, trade secrets, and other proprietary information relating
to the business of the Company and its customers and suppliers, and similar
knowledge regarding the Company it is expected the Employee will obtain,
the Employee agrees that during the Employment Period and for a period of
one (1) year thereafter, he will not compete with, or be engaged in the
same business as, the Company with respect to any product or service sold,
or activity engaged in, by the Company in any geographical area which, at
the Transition Date, such product or service is sold, or activity is
engaged in, by the Company; provided, however, that the provisions of this
Section 4 shall not be interpreted to preclude the Employee, at any time
and from time to time, from (a) Participating in any other person or
organization if approved by a majority of the independent Directors of the
Company; or (b) to the extent otherwise prohibited hereby, owning not more
than five percent (5%) of the outstanding capital stock of any
publicly-traded person; or (c) owning interests in certain persons, which
interests are owned by the Employee on the date hereof. The terms
"Participate In" and "Participating In" shall mean: "directly or
indirectly, for his own benefit, or for, with, or through any other person,
own or owning, manage or managing, operate or operating, control or
controlling, loaning money to or lending money to, or participate in or
participating in, as the case may be, the ownership, management, operation,
or control of, or be connected or being connected, as the case may be, as a
director, officer, employee, partner, consultant, agent, independent
contractor, or otherwise, with or acquiesce or acquiescing, as the case may
be, in the use of his name in.
(b) Non-Solicitation. Except as approved in writing by a senior
executive officer of the Company, the Employee will not directly or
indirectly employ any person who, at any time up to the cessation of the
Employment Period, was an employee of the Company, within a period of one
(1) year after such person voluntarily leaves the employ of the Company.
(c) Confidentiality. All confidential information which the Employee
may now possess, may obtain during or after the Employment Period, or may
create prior to the end of the Employment Period, or otherwise relating to
the business of the Company, or any of its subsidiaries or affiliates, or
of any customer or supplier of any of them, shall not be published,
disclosed, or made accessible by him to any other person, either during or
after the termination of his employment, or used by him, except during the
Employment Period, in the business and for
<PAGE>
the benefit of the Company and its subsidiaries and affiliates. The
Employee shall return all tangible evidence of such confidential
information to the Company prior to, or at the termination of, his
employment hereunder.
(d) Remedies. Since a breach of the provisions of this Section 4 could
not adequately be compensated by money damages, the Company shall be
entitled, in addition to any other right and remedy available, to seek an
injunction restraining such breach. The Employee agrees that the provisions
of this Section 4 are necessary and reasonable to protect the Company in
the conduct of its business.
(e) Severability. If any restriction contained in this Section 4 shall
be deemed to be invalid, illegal, or unenforceable by reason of the extent,
duration, or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent,
duration, geographical scope, or other provisions hereof, and in its
reduced form such restriction shall then be enforceable in the manner
contemplated hereby.
SECTION 5. Termination.
(a) Definitions.
(i) Death Termination Event. As used herein, "Death Termination
Event" shall mean the death of the Employee.
(ii) Disability Termination Event. As used herein, "Disability
Termination" shall mean a circumstance where the Employee is
physically or mentally incapacitated or disabled, or otherwise unable
to fully discharge his duties hereunder for a period of 185
consecutive days.
(iii) Estate. As used herein, "Estate" shall mean (A) in the
event that the last will and testament of the Employee has not been
probated at the time of determination, the estate of the Employee; and
(B) in the event that the last will and testament of the Employee has
been probated at the time of determination, the legatees of the
Executor who are entitled under such will to the assets or payments at
issue.
(iv) Termination for Cause. As used herein, "Termination for
Cause" shall mean the termination by the Company of the Employee's
employment hereunder, upon a good faith determination by majority vote
of the independent members of the Board of Directors of the Company,
that termination of this Agreement is necessary by reason of (A) the
conviction of the Employee of a felony under state or federal law,
unless in any such case the Employee performed such act in good faith,
and in a manner the Employee reasonably believed to be in, or not
opposed to, the best interests of the Company; (B) the continued
material breach by the Employee of any of the material provisions of
this Agreement for a period of ten (10) days after written notice of
such breach is delivered to the Employee by the Company; (C) failure
by the Employee to comply with any material written directive of the
Board of Directors of the Company, the compliance by the Employee with
which would not violate applicable law, for a period of ten (10) days
after written notice of such failure is delivered to the Employee by
the Company; (D) the taking by the
<PAGE>
Employee of any such action, on behalf of the company, without the
possession by the Employee of the appropriate authority to take such
action; (E) a violation of the confidentiality provisions of Section 4
by the Employee; (F) the taking by the Employee of actions in conflict
of interest with the Company, given the Employee's position with the
Company and its subsidiaries and affiliates, for a period of ten (10)
days after written notice of such breach is delivered to the Employee
by the Company; (G) the usurpation of a corporate opportunity of the
Company by the Employee; or (H) the violation by the Employee of any
of the policies of the Company for a period of ten (10) days after
written notice of such violation is delivered to the Employee by the
Company.
(v) Termination Without Cause. As used herein, "Termination
Without Cause" shall mean any termination of the Employee's employment
hereunder that is not a Termination for Cause, a Death Termination
Event, or a Disability Termination Event.
(b) Death Termination Event. Upon the occurrence of a Death
Termination Event, this Agreement shall terminate automatically upon the
date that such Death Termination Event occurred (subject to the last
sentence of this Section 5), whereupon the Company shall continue to pay
the Special Compensation to the Estate for a period equal to the remaining
term of the Special Compensation Period, the Initial Base Salary as
adjusted by Section 3(a) of the Agreement to the Estate for a period equal
to the remaining term of the Initial Base Salary Period, and the New Base
Salary Period as adjusted by Section 3(a) of the Agreement to the Employee
for the remaining term of the Employment Period.
(c) Disability Termination Event. Upon the occurrence of a Disability
Termination Event, this Agreement shall terminate automatically upon the
date that such Disability Termination Event occurred (subject to the last
sentence of this Section 5), whereupon the Company shall continue to pay
the Special Compensation to the Employee for a period equal to the
remaining term of the Special Compensation Period, the Initial Base Salary
as adjusted by Section 3(a) of the Agreement to the Employee for a period
equal to the remaining term of the Initial Base Salary Period, and the New
Base Salary as adjusted by Section 3(a) of the Agreement to the Employee
for the remaining term of the Employment Period.
(d) Termination For Cause. Upon the occurrence of a Termination for
Cause, this Agreement shall terminate upon the date that such Termination
for Cause occurred (subject to the last sentence of this Section 5),
whereupon the Company shall continue to pay the Special Compensation to the
Employee for a period equal to the remaining term of the Special
Compensation Period, the Initial Base Salary as adjusted by Section 3(a) of
the Agreement to the Employee for a period equal to the remaining term of
the Initial Base Salary Period, and the New Base Salary as adjusted by
Section 3(a) of the Agreement to the Employee for the remaining term of the
Employment Period.
(e) Termination Without Cause. Upon the occurrence of a Termination
Without Cause, this Agreement shall terminate upon the date that such
Termination Without Cause occurred (subject to the last sentence of this
Section 5), whereupon the Company shall continue to pay the Special
Compensation to the Employee for a period equal to the remaining term of
the Special Compensation Period, the Initial Base Salary as adjusted by
Section 3(a) of the
<PAGE>
Agreement to the Employee for a period equal to the remaining term of the
Initial Base Salary Period, and the New Base Salary as adjusted by Section
3(a) of the Agreement to the Employee for the remaining term of the
Employment Period.
Notwithstanding anything in this Agreement to the contrary Sections 3(a),
3(b), 3(f), 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20,
21, 22 and 23 of this Agreement shall survive any termination of this
Agreement, or of the Employee's employment hereunder, until the expiration
of the statute of limitations applicable hereto.
SECTION 6. Consulting Agreement. Following the Date of this Agreement,
provided that the Employee is not otherwise in breach of any of the terms
of this Agreement, the Employee shall be permitted, at his own cost and
expense, to form one or more entities or acquire an interest in one or more
entities (that will not be affiliated with the Company) to provide, among
other things, certain consulting real estate related services (the
"Consulting Company") exclusively for the Company and its affiliates, and
to design, administer, service and sell financial and/or insurance products
to qualified and non-qualified retirement plans, deferred compensation and
incentive arrangements, and executive compensation programs, provide
consulting services to medical practices and other professional
organizations, provide consulting services with respect to mergers,
acquisitions, dispositions, reorganizations, and/or recapitalizations of
companies not in direct competition with the Company's activities, as of
the Transition Date. The Employee will not necessarily be directly involved
in any of the above services offered by such entities. Until the Transition
Date, the Employee will not actively participate in the Consulting Company
or other entities. The Employee agrees and acknowledges that (i) the time
the Employee devotes to the Consulting Company or other entities will not
unreasonably interfere with his post-Transition Date responsibilities to
the Company under this Agreement; (ii) the Consulting Company and other
entities will be bound by the terms of Section 4 of this Agreement; and
(iii) prior to the termination of Employee's employment by the Company
hereunder, without the written consent of the Company by the Chief
Executive Officer or the Board of Directors, the Consulting Company and the
other entities will undertake, in good faith, not to represent, in any
capacity, directly or indirectly, any person or entity that then competes
with any line of business engaged in by the Company or any of its
affiliates as of the Transition Date, and will cease any inadvertent
representation within thirty (30) days of being notified, in writing, by
the Company of such competition. Following the Transition Date and provided
that the Employee is not otherwise in breach of any of the terms of this
Agreement, the Company agrees to negotiate a mutually acceptable consulting
agreement with the Consulting Company; provided, however, the failure of
the Company to enter into a consulting agreement with the Consulting
Company will not be a breach of this Agreement.
SECTION 7. Reaffirmation of Delegation and Indemnification Agreements. The
Employee acknowledges that he executed certain Delegation and Indemnification
Agreements in favor of the Company and its affiliates in connection with the
Company's Jacques Miller acquisition. The Employee hereby reaffirms all of the
terms and conditions of each such Delegation and Indemnification Agreement and
agrees and acknowledges that such agreements are in full force and effect.
<PAGE>
SECTION 8. MAE Power of Attorney, Covenant Not to Sue, and Release. The
Employee acknowledges that the Company assigned to him a one-half of one percent
limited partnership interest (the "Interest") in Metropolitan Asset Enhancement,
L.P., a Delaware limited partnership (the "Partnership") as of September 1, 1993
and that MAE Parent, Incorporated, a Delaware corporation, is the general
partner of the Partnership (the "General Partner").
(a) Power of Attorney. The Employee hereby reaffirms the Power of
Attorney granted to the General Partner of the Partnership set forth in
that certain letter dated September 1, 1993 from the Employee to the
Partnership and the General Partner (the "Letter").
(b) Covenant Not to Sue. The Employee hereby reaffirms the covenant
not to sue set forth in the Letter.
(c) MAE Release. As a material inducement to the Company to enter into
this Agreement, the Employee hereby irrevocably and unconditionally
releases, acquits, and forever discharges the Partnership and the General
Partner and any past, current or future affiliates thereof, and any of
their respective past, current or future officers, partners, stockholders,
employees, agents, representatives, accountants and counsel from any and
all charges, complaints, claims, liabilities, obligations, promises,
agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts, and expenses resulting from any
contracts, expressed or implied, or any tort arising directly, or
indirectly, out of any other matter.
SECTION 9. Covenant Not to Sue. The Employee agrees, for himself, his
heirs, his personal representatives, his successors, and his assigns, to never
sue and never assist any other person in suing or litigating against the
Company, any of the past, current or future affiliates thereof, or any of their
respective past, current, or future officers, directors, partners, stockholders,
employees, agents, representatives, accountants, and counsel for any claim,
cause of action, or liability that directly, or indirectly, arises out of any
matter, except any claim solely related to this Agreement. The Employee
understands and agrees that such waiver and such covenant not to sue have been
made knowingly and with the benefit of the advice of counsel. The Employee
hereby consents to the jurisdiction convenue of the United States Federal
District Court located in Greenville, South Carolina for any lawsuit directly,
or indirectly, arising out of, relating to, or resulting from this Agreement or
subsequent contracts or agreements that may be executed by the parties or their
respective affiliates.
SECTION 10. Withholding. The Company shall be entitled to withhold from
amounts payable to the Employee hereunder such amounts as may be required by
applicable law to be so withheld.
SECTION 11. Complete Release. As a material inducement to the Company to
enter into this Agreement, the Employee hereby irrevocably and unconditionally
releases, acquits, and forever discharges the Company, its parent, divisions,
subsidiaries, affiliates and controlling persons (if any), their respective
stockholders, partners, agents, directors, officers, employees, representatives,
attorneys, personal representatives, successors and assigns, and all persons
acting by, through, under, or in concert with any of them (collectively,
"Releasees"), or any of them,
<PAGE>
from any and all charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses of any contracts, express or
implied, or any tort, or any legal restrictions on the Company's right to
terminate employees, or any federal, state or other governmental statute,
regulation or ordinance, including, without limitation: (a) Title VII of the
Civil Rights Act of 1964, (race, color, religion, sex, disability, and national
origin discrimination); (b) 42 U.S.C. Section 1981 (discrimination); (c) 29
U.S.C. Section 621-624 (the Age Discrimination in Employment Act); (d) 29 U.S.C.
Section 206(d)(1) (equal pay); (e) Executive Order 11246 (race, color, religion,
sex and national origin discrimination); (f) Executive Order 11141 (age
discrimination); (g) Section 503 of the Rehabilitation Act of 1973 (handicap
discrimination); (h) intentional or negligent infliction of emotional distress
or "outrage"; (i) defamation; (j) interference with employment; (k) wrongful
discharge; and (l) invasion of privacy ("Claim" or "Claims"), which Employee now
has, owns or holds, or which Employee at any time heretofore had, owned, or held
against each or any of the Releasees at any time. The Employee agrees to
reaffirm this release at the end of the Employment Period.
SECTION 12. Modification. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
supersedes the Employment Agreement, dated September 1, 1993, as amended by
Amendment No. 1, dated April 1, 1995, and Amendment No. 2, dated February 20,
1996, and any other compensation-related agreements or arrangements, and may be
modified only by a written instrument duly executed by each party.
SECTION 13. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given, at the address of such party set forth in the
preamble to this Agreement (or to such other address as such party shall have
furnished, in writing, in accordance with the provisions of this Section 13).
Notice to the Estate shall be sufficient if addressed to the Employee as
provided in this Section 13. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address, which shall be deemed given at
the time of receipt thereof.
SECTION 14. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as, or be construed to be, a waiver of any
other breach of such provision, or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term, or any other term of this Agreement. Any waiver must be in writing.
SECTION 15. Binding Effect. The Employee's rights and obligations under
this Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims of the
Employee's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Employee, his heirs and personal representatives, and shall be binding
upon and inure to the benefit of the Company and its successors.
<PAGE>
SECTION 16. Third Party Beneficiaries. Except as otherwise set forth in
this Agreement, this Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement.
SECTION 17. Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions thereof.
SECTION 20. Severability. If any provision of this Agreement is held to be
invalid or unenforceable, then to the extent such invalidity or unenforceability
shall not deprive either party of any material benefit intended to be provided
by this Agreement. All of the remaining provisions of this Agreement shall
remain in full force and effect and shall be binding upon the parties hereto.
SECTION 21. Neutral Construction. No provision of this Agreement will be
interpreted in favor of, or against, any of the parties hereto by reason of the
extent to which any such party, or its counsel, participated in the drafting
thereof, or by reason of the extent to which any such provision is inconsistent
with any prior draft hereof or thereof.
SECTION 22. Survival. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive the
termination of this Agreement.
SECTION 23. Key Man Life Insurance. In the event that the Company
determines it will not maintain an existing Key Man Life Insurance Policy, the
Company shall notify the Employee of such fact and shall provide the Employee
with the opportunity to assume the maintenance of the Key Man Life Insurance
Policy to the extent that such policy can be so assumed.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Andrew L. Farkas
------------------------
Name: Andrew L. Farkas
Title: Chairman, President, and
Chief Executive Officer
<PAGE>
/s/ John F. Jacques
-------------------
JOHN F. JACQUES
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), is entered into as of January 1,
1996, by and between INSIGNIA FINANCIAL GROUP, INC., a Delaware corporation with
an office at One Insignia Financial Plaza, Post Office Box 1089, Greenville,
South Carolina 29602 ("Company"), and JOHN K. LINES an individual with an office
at One Insignia Financial Plaza, Post Office Box 1089, Greenville, South
Carolina 29602 ("Executive").
Background
The Company desires to assure itself of the services of the Executive for
the period provided in this Agreement, and the Executive is willing to serve in
the employ of the Company for such period upon the terms and conditions provided
in this Agreement.
Statement of Agreement
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
Section 1. Employment. The Company hereby agrees to employ the Executive,
and the Executive hereby accepts such employment, in each case upon the terms
and conditions set forth herein, for a period commencing on January 1, 1996, and
ending on June 30, 1997, subject to earlier termination as set forth herein
(such period, as it may be so terminated, being referred to herein as the
"Employment Period").
Section 2. Duties and Services.
(a) Offices. During the Employment Period, the Executive shall serve
as General Counsel and Secretary of the Company. In the performance of his
duties hereunder, the Executive shall report to and shall be responsible to
the President of the Company's Financial Services Division. The Executive
agrees to his employment as described in this Section 2, and agrees to
devote substantially all of his time and efforts to the performance of his
duties hereunder and to Metropolitan Asset Enhancement, L.P. and its
subsidiaries. The Executive shall be available to travel as the needs of
the business of the Company require.
(b) Location of Office. During the Employment Period, the Executive's
office shall be located in offices of the Company located in Greenville,
South Carolina. The Company will provide the Executive with his current
office, use of an executive secretary, and other support appropriate to his
duties hereunder. The Executive will relocate, within a reasonable period
of time, to any location in the continental United States where the
<PAGE>
Company's principal executive offices are relocated if there is at least
one year remaining in the Employment Period, and in connection therewith,
the Company shall pay for relocation expenses incurred in connection
therewith that are of the type customarily paid by the Company with respect
to relocations of executives holding a similar executive position.
(c) Primary Responsibilities. During the Employment Period, the
Executive shall have such responsibilities as are assigned to him by the
President of the Company's Financial Services Division.
Section 3. Compensation. As full compensation for his services hereunder,
the Company shall pay, grant, issue or give, as the case may be, to the
Executive the following:
(a) Base Salary. Subject to the provisions of Sections 6 and 7, a base
salary at the rate of $160,000 per annum ("Base Salary"), which Base Salary
shall be paid to the Executive in accordance with the customary executive
payroll policy of the Company as in effect from time to time; provided,
however, that the Base Salary, as in effect at any time and from time to
time, may be increased by action of the Board of Directors.
(b) Annual Bonus. An annual bonus ("Bonus"), the amount of which shall
be determined by the Board of Directors of the Company, acting in its sole
discretion, and shall be paid to the Executive, with respect to any fiscal
year of the Company, before the expiration of sixty (60) days after the end
of such fiscal year.
(c) Fringe Benefit Programs. In addition to the other benefits
provided to the Executive hereunder and to the extent he satisfies the
eligibility requirements thereof and to the extent permitted by law,
participation in fringe benefit programs introduced generally to senior
corporation officers of the Company or generally to employees of the
Company, including, without limitation, pension, profit sharing, stock
purchase, savings, bonus, disability, life insurance, health insurance,
hospitalization, dental, deferred compensation and other plans and policies
authorized on the date hereof or in the future.
(d) Perquisites. In addition to the other benefits provided to the
Executive hereunder, and at the sole cost and expense of the Company except
as otherwise provided herein:
(i) A membership at The Commerce Club, Greenville, South
Carolina; and
(ii) Reasonable consultations with financial and tax advisors or
counselors, including annual income tax preparation.
(e) Expense Reimbursement. Reimbursement of the Executive for all
out-of-pocket expenses incurred by him in connection with the performance
of his duties hereunder, including professional activities and membership
fees and dues relating to professional organizations of which the Executive
currently is a member or is directed to be a member by the President of the
Company's Financial Services Division, upon the
<PAGE>
presentation of appropriate documentation therefor in accordance with the
then regular procedures of the Company.
(f) Vacations. Paid vacations and leaves-of-absence in accordance with
the then regular procedures of the Company governing executives, which
policy currently provides four (4) weeks of paid vacation per year on a
non-cumulative basis.
Section 4. Representations, Warranties and Covenants of the Executive. The
Executive represents and warrants to the Company as follows:
(a) He is under no contractual or other restriction or obligation
which is inconsistent with the execution of this Agreement, the performance
of his duties hereunder, or the other rights of the Company hereunder; and
(b) He is under no physical or mental disability that would hinder his
performance of duties under this Agreement.
Section 5. Non-Competition.
(a) In view of the unique and valuable services it is expected the
Executive will render to the Company, the Executive's knowledge of the
customers, trade secrets and other proprietary information relating to the
business of the Company and its customers and suppliers, and similar
knowledge regarding the Company it is expected the Executive will obtain,
the Executive agrees that during the Employment Period and for a period of
one (1) year thereafter, he will not compete with or be engaged in the same
business as, or Participate In (as hereinafter defined) any other business
or organization which, at the time of the cessation of the Employment
Period, competes with or is engaged in the same business as the Company,
with respect to any product or service sold or activity engaged in by the
Company in any geographical area which at the time of such cessation such
product or service is sold or activity is engaged in by the Company;
provided, however, that the provisions of this Section 5 shall not be
interpreted to preclude the Executive, at any time and from time to time,
from (a) Participating In any other person or organization if approved by a
majority of the independent Directors of the Company, or (b) to the extent
otherwise prohibited hereby, owning not more than five (5%) percent of the
outstanding capital stock of any publicly-traded person. The terms
"Participate In" and "Participating In" shall mean "directly or indirectly,
for his own benefit or for, with or through any other person, own or
owning, manage or managing, operate or operating, control or controlling,
loan money to or lending money to, or participate in or participating in,
as the case may be, the ownership, management, operation, or control of or
be connected or being connected, as the case may be, as a director,
officer, employee, partner, consultant, agent, independent contractor or
otherwise with, or acquiesce or acquiescing, as the case may be, in the use
of his name in". The Executive will not directly or indirectly employ any
person who, at any time up to such cessation, was an employee of the
Company, within a period of two (2) years after such person leaves the
employ of the Company.
(b) All confidential information which the Executive may now possess,
<PAGE>
may obtain during or after the Employment Period, or may create prior to
the end of the Employment Period or otherwise relating to the business of
the Company or any of its subsidiaries or affiliates or of any customer or
supplier of any of them shall not be published, disclosed or made
accessible by him to any other person, either during or after the
termination of his employment, or used by him except during the Employment
Period in the business and for the benefit of the Company and its
subsidiaries and affiliates. The Executive shall return all tangible
evidence of such confidential information to the Company prior to or at the
termination of his employment hereunder.
(c) Since a breach of the provisions of this Section 5 could not
adequately be compensated by money damages, the Company shall be entitled,
in addition to any other right and remedy available to it, to seek an
injunction restraining such breach. The Executive agrees that the
provisions of this Section 5 are necessary and reasonable to protect the
Company in the conduct of its business. If any restriction contained in
this Section 5 shall be deemed to be invalid, illegal or unenforceable by
reason of the extent, duration or geographical scope thereof, or otherwise,
then the court making such determination shall have the right to reduce
such extent, duration, geographical scope or other provisions hereof, and
in its reduced form such restriction shall then be enforceable in the
manner contemplated hereby.
Section 6. Termination.
(a) Definitions.
(i) Death Termination Event. As used herein, "Death Termination
Event" shall mean the death of the Executive.
(ii) Disability Termination Event. As used herein, "Disability
Termination Event" shall mean a circumstance where the Executive is
physically or mentally incapacitated or disabled or otherwise unable
to fully discharge his duties hereunder for a period of 185
consecutive days.
(iii) Estate. As used herein, "Estate" shall mean (A) in the
event that the last will and testament of the Executive has not been
probated at the time of determination, the estate of the Executive,
and (B) in the event that the last will and testament of the Executive
has been probated at the time of determination, the legatees of the
Executor who are entitled under such will to the assets or payments at
issue.
(iv) Termination For Cause. As used herein, the term "Termination
For Cause" shall mean the termination by the Company of the
Executive's employment hereunder upon a good faith determination by
majority vote of the independent members of the Board of Directors of
the Company that termination of this Agreement is necessary by reason
of (A) the conviction of the Executive of a felony under state or
federal law, unless in any such case the Executive performed such act
in good faith and in a manner the Executive reasonably
<PAGE>
believed to be in or not opposed to the best interests of the Company,
(B) the continued material breach by the Executive of any of the
material provisions of this Agreement for a period of thirty (30) days
after written notice of such breach is delivered to the Executive by
the Company, (C) failure by the Executive to comply with any material
directive of the Board of Directors of the Company, (D) the taking by
the Executive of any action on behalf of the Company without the
possession by the Executive of the appropriate authority to take such
action, (E) a violation of the provisions of Section 5 or 12 by the
Executive, (F) the taking by the Executive of actions in conflict of
interest with the Company, given the Executive's positions with the
Company and its subsidiaries and affiliates, or (G) the usurpation of
a corporate opportunity of the Company by the Executive.
(vi) Termination Without Cause. As used herein, "Termination
Without Cause" shall mean any termination of the Executive's
employment hereunder that is not a Termination For Cause, a Death
Termination Event or a Disability Termination Event.
(b) Death Termination Event. Upon the occurrence of a Death
Termination Event, this Agreement shall terminate automatically upon the
date that such Death Termination Event occurred (subject to the last
sentence of this Section 6), whereupon the Company shall continue to pay
the then-current Base Salary to the Estate for a period equal to the
remaining term of the Employment Period (determined upon the assumption
that the Employment Period will not be terminated prior to June 30, 1997).
(c) Disability Termination Event. Upon the occurrence of a Disability
Termination Event, this Agreement shall terminate automatically upon the
date that such Disability Termination Event occurred (subject to the last
sentence of this Section 6).
(d) Termination For Cause. The Executive and the Company agree that
the Company shall have the right to effectuate a Termination For Cause
prior to June 30, 1997. Upon the occurrence of a Termination For Cause,
this Agreement shall terminate upon the date that such Termination For
Cause occurs (subject to the last sentence of this Section 6), whereupon
the Executive shall be entitled to receive the Base Salary, as then in
effect, to and including the date that such Termination For Cause occurs.
(e) Termination Without Cause. Upon the occurrence of a Termination
Without Cause, this Agreement shall terminate upon the date that such
Termination Without Cause occurs (subject to the last sentence of this
Section 6), whereupon the Company shall (A) in the event that such
Termination Without Cause is not a Change In Control Termination (as
defined in Section 7(b)), continue to pay the then-current Base Salary to
the Executive until June 30, 1997, and (B) in the event that such
Termination Without Cause is a Change In Control Termination, pay to the
Executive the Farkas Termination Payment (as defined in Section 7(a)) in
accordance with the provisions of Section 7.
Notwithstanding anything in this Agreement to the contrary, (i) Sections
3(e), 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 and 18 of this Agreement
shall survive any termination of this Agreement or of the Executive's employment
hereunder until the
<PAGE>
expiration of the statute of limitations applicable hereto, and (ii) Section 5
of this Agreement shall survive any termination of this Agreement or of the
Executive's employment hereunder other than a Termination Without Cause, it
being understood and agreed by the parties hereto that in the event of a
Termination Without Cause, Section 5(a) of this Agreement shall be terminated in
its entirety as of the date of such Termination Without Cause.
Section 7. Farkas Termination Event.
(a) Definitions.
(i) Code. As used herein, the term "Code" shall mean the Internal
Revenue Code of 1986, as amended on the date hereof and as
subsequently amended, modified or superseded.
(ii) Farkas Termination Event. As used herein, the term "Farkas
Termination Event" shall have the meaning ascribed to (A) the term
"Change in Control" pursuant to Section 7(a) of that certain
Employment Agreement, dated as of September 1, 1993, by and between
the Company and Andrew Lawrence Farkas, as amended from time to time
(the "Farkas Employment Agreement"), (B) the term "Influence Change In
Control" pursuant to Farkas Employment Agreement, and/or (C) the term
"Stock Change In Control" pursuant to Section 7(a) of the Farkas
Employment Agreement. A copy of the definitions of such terms in the
Farkas Employment Agreement is attached hereto as Schedule 1 and is
hereby made a part hereof.
(iii) Farkas Termination Payment. As used herein, the term
"Farkas Termination Payment", as determined at any time, shall mean
the Base Salary as in effect at such time, multiplied by three;
provided, however, that if at such time such payment, if made, would
be subject to an excise tax pursuant to Section 4999 of the Code, or
any successor law, rule or regulation, then such payment shall mean
the Base Salary as in effect at such time, multiplied by three, plus
an amount sufficient to pay such excise tax (taking into account the
fact that such additional amount may in and of itself be subject to
such excise tax).
(b) Farkas Termination Event. Upon the occurrence of a Farkas
Termination Event during the Employment Period, (i) this Agreement shall be
terminated as of the date of such Farkas Termination Event (a "Change In
Control Termination"), (ii) the provisions of Section 6(e) of this
Agreement shall be in effect as of the date of such Farkas Termination
Event, and (iii) the Company shall pay to the Executive, in immediately
available funds, the Farkas Termination Payment on the date of the
occurrence of such Farkas Termination Event; provided, however, that a
Farkas Termination Event, and a Change In Control Termination, shall be
deemed to have not occurred hereunder in such event if, (x) in the case of
the disposition of the properties and business of the Company,
substantially as an entity, by merger, consolidation, sale of assets or
otherwise, the purchaser or surviving entity, as the case may be, and the
Executive mutually agree to continue the Executive's employment hereunder
for the remainder of the Employment Period at a Base
<PAGE>
Salary equal to one hundred fifty (150%) percent of the then-current Base
Salary, or (y) in any other case, the Company and the Executive mutually
agree to continue the Executive's employment hereunder for the remainder of
the Employment Period at a Base Salary equal to one hundred fifty (150%)
percent of the then-current Base Salary.
Section 8. Indemnification. The Company has indemnified the Executive
pursuant to the terms of an Indemnification Agreement which was executed by the
Company and the Executive and delivered by the Company to the Executive and by
the Executive to the Company as of May 25, 1995.
Section 9. Withholding. The Company shall be entitled to withhold from
amounts payable to the Executive hereunder such amounts as may be required by
applicable law to be so withheld.
Section 10. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive the
termination of this Agreement, irrespective of any investigation made by or on
behalf of any party hereto. All confidential information which the Executive may
now possess, may obtain during or after the Employment Period, or may create
prior to the end of the Employment Period or otherwise relating to the business
of the Company or any of its subsidiaries or affiliates or of any customer or
supplier of any of them shall not be published, disclosed or made accessible by
him to any other person, either during or after the termination of his
employment, or used by him except during the Employment Period in the business
and for the benefit of the Company and its subsidiaries and affiliates. The
Executive shall return all tangible evidence of such confidential information to
the Company prior to or at the termination of his employment hereunder.
Section 11. Modification. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
Section 12. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given, at the address of such party set forth in the
preamble to this Agreement (or to such other address as such party shall have
furnished in writing in accordance with the provisions of this Section 2).
Notice to the Estate shall be sufficient if addressed to the Executive as
provided in this Section 13. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
Section 13. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
<PAGE>
Section 14. Binding Effect. The Executive's rights and obligations under
this Agreement shall not be transferrable by assignment or otherwise, such
rights shall not be subject to commutation, encumbrance or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors.
Section 15. Headings. The headings in this Agreement are solely for
convenience of reference, and shall be given no effect in the construction or
interpretation of this Agreement.
Section 16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Frank M. Garrison
--------------------------
Name: Frank M. Garrison
Its: Executive Managing Director
/s/ John K. Lines
-----------------
John K. Lines
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 to Employment Agreement (this "Agreement"), made as of
February 20, 1996, is by and between Insignia Financial Group, Inc., a Delaware
corporation with an office at One Insignia Financial Plaza, Post Office Box
1089, Greenville, South Carolina 29602 (the "Company"), and Ronald Uretta, an
individual with an office at One Insignia Financial Plaza, Post Office Box 1089,
Greenville, South Carolina 29602 (the "Executive").
Background
The Company and the Executive entered into an Employment Agreement dated as
of September 1, 1993 (the "Original Agreement") and an Amendment No. 1 to
Employment Agreement (the "Amendment") dated as of April 1, 1995. The Company
and the Executive now desire to amend the Original Agreement, as amended.
Statement of Agreement
In consideration of the foregoing, the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Defined Terms. Capitalized terms used in this Agreement but not
otherwise defined herein shall have the meanings ascribed thereto in the
Original Agreement, as amended.
Section 2. Amendment of Section 1 of the Original Agreement. Section 1 of
the Original Agreement, as amended, is hereby amended by deleting "September 1,
1997" and inserting in its place "June 30, 1998".
Section 3. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (j) to Section 3:
"The Executive shall receive a bonus in the amount of $250,000.00 on the
occurrence of a Change In Control, Stock Change In Control or other
material change to the equity capital structure of the Company prior to the
end of the Employment Period and an additional bonus of $250,000.00
("Additional Bonus") on the date which is eighteen (18) months following
the date of the occurrence of such event if, and only if, the Executive is
still employed by the Company. If the Executive is terminated by the
Company for cause, including, but not limited to, a Termination Without
Cause, the Executive shall no longer be entitled to and shall
<PAGE>
have no claim for the Additional Bonus. For purposes of this Section 3 (j),
whether or not a material change to the equity capital structure of the
Company has occurred will be determined by a vote of the majority of the
disinterested members of the Board of Directors of the Company acting in
good faith."
Section 4. Amendment of Section 3 of the Original Agreement. Section 3 of
the Original Agreement, as amended, is hereby amended by adding the following
new subsection (k) to Section 3:
In the event of a Death Termination Event, Disability Termination Event, or
upon the occurrence of a Change In Control or Stock Change In Control, all
options and warrants then held by and granted to the Executive will
immediately vest and be exercisable by the Executive; provided however that
in the event of a Death Termination Event or Disability Termination Event,
any options shall only remain exercisable for a period of one year
following such termination event (but not later than the scheduled
expiration date of such options). In the event of a Termination Without
Cause, the Compensation Committee of the Board of Directors, shall in its
sole and absolute discretion, determine whether or not to vest all options
and warrants granted to the Executive upon the occurrence of such
Termination Without Cause.
Section 5. Amendment of Section 6 of the Original Agreement. Section 6(b),
6(d) and 6(e) of the Original Agreement, as amended, are hereby amended by
deleting in each Subsection "September 1, 1997" and inserting in its place "June
30, 1998".
Section 6. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given, at the address of such party set forth in the preamble of this
Agreement (or to such other address as such party shall have furnished in
writing in accordance with the provisions of this Section). Notice to the Estate
shall be sufficient if addressed to the Executive as provided in this Section.
Any notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof.
Section 7. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
<PAGE>
Section 8. Binding Effect. The Executive's rights and obligations under
this Agreement shall not be transferrable by assignment or otherwise, such
rights shall not be subject to commutation, encumbrance or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors.
Section 9. Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
Section 10. Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
Section 11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions hereof.
Section 13. Affirmation. The parties hereto agree that the Original
Agreement, and the Amendment, as amended hereby, are in full force and effect on
and as of the date hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ John K. Lines
---------------------
Name: John K. Lines
Title: General Counsel and Secretary
/s/ Ronald Uretta
-----------------
Ronald Uretta
PURCHASE AGREEMENT
DATED AS OF DECEMBER 31, 1996
Between
GSSW-REO OWNERSHIP CORPORATION,
GSSW LIMITED PARTNERSHIP
and
SOUTHWEST ASSOCIATES, L.P.
With Respect to
All of the General Partnership and Limited Partnership Interests
of certain Limited Partnerships
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is made and entered into this 31st
day of December, 1996, by and between SOUTHWEST ASSOCIATES, L.P., a Delaware
limited partnership or its designee (the "Purchaser") and GSSW Limited
Partnership, a Texas limited partnership (the "Company") and GSSW-REO Ownership
Corporation, a Texas corporation ("GSSW-REO") (sometimes collectively referred
to as the "Seller").
Introductory Provisions:
The following provisions are true and correct and form the basis for and
are a part of this Agreement:
A. GSSW-REO owns one hundred percent (100%) of the general partnership
interests (the "General Partnership Interests") of each of the Property
Partnerships (as hereinafter defined), which General Partnership Interests
represent one percent (1%) of the legal and equitable ownership interests in
each of the Property Partnerships.
B. The Company owns one hundred percent (100%) of the limited partnership
interests (the "Limited Partnership Interests") of the Property Partnerships,
which Limited Partnership Interests represent ninety-nine percent (99%) of the
legal and equitable ownership interests in each of the Property Partnerships.
C. Seller desires to sell to Purchaser and Purchaser desires to purchase
from GSSW-REO and the Company, the General Partnership Interests and the Limited
Partnership Interests, respectively, on the terms and subject to the conditions
and other provisions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
The capitalized terms used herein will have the following meanings.
"Affiliate" shall mean any Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with the Person.
<PAGE>
"Agreement" shall mean this Purchase Agreement, together with the exhibits
attached hereto and the Disclosure Schedule.
"Allocated Price" shall mean with respect to each Property the portion of
the Purchase Price allocated with respect to such Property as shown on Exhibit
"B" hereto.
"Assets and Properties" shall mean all assets or properties of every kind,
nature, character, and description (whether real, personal, or mixed, whether
tangible or intangible, whether absolute, accrued, contingent, fixed, or
otherwise, and wherever situated) as now operated, owned, or leased by a
specified Person (directly or indirectly), including without limitation cash,
cash equivalents, securities, accounts and notes receivable, real estate,
equipment, furniture, fixtures, goodwill, and going-concern value.
"Assignment of Partnership Interests" shall mean an Assignment of
Partnership Interests in form and substance as set forth on Exhibit "A" attached
hereto.
"Claim Notice" shall mean written notification of a Third Party Claim by an
Indemnified Party to an Indemnifying Party pursuant to Section 9.2 hereof,
enclosing a copy of all papers served, if any.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as provided in Section 2.3 hereof.
"Closing Date" shall mean December 31, 1996.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean GSSW Limited Partnership, a Texas limited partnership.
"Company's Knowledge" shall mean the current actual knowledge of Thomas W.
Sabin, Jr., Robert J. Graham and J. Kevin Rucker without any duty of inquiry or
investigation.
"Contract" shall mean any written agreement, Lease, license, sublicense,
promissory note, evidence of indebtedness, guaranty (directly or indirectly) of
indebtedness, or other contract or commitment.
"Control" shall mean the power to elect a majority of the board of
directors or other governing body of any such Person or otherwise manage, direct
or govern the business operations or policies of such Person.
"Damages" shall mean any and all monetary damages, liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses, and expenses
(including without limitation punitive, treble, or other exemplary or other
extra contractual damage amounts paid in settlement, interest,
<PAGE>
court costs, costs of investigation, fees and expenses of attorneys,
accountants, appraisers and other experts).
"Disclosure Schedule" shall mean the disclosure schedule dated the date
hereof furnished by the Seller to the Purchaser and containing all lists,
descriptions, exceptions, and other information and materials as are required to
be included therein pursuant to this Agreement.
"Environmental Laws" shall mean without limitation (a) the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984, as now or hereafter amended ("RCRA") (42 U.S.C. Section6901
et seq.), (b) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as now or hereafter amended ("CERCLA") (42 U.S.C.
Section 9601 et seq.), (c) the Clean Water Act, as now or hereafter amended
("CWA") (33 U.S.C. Section 1251 et seq.), (d) the Toxic Substances Control Act,
as now or hereafter amended ("TSCA") (15 U.S.C. Section 2601 et seq.), (e) the
Clean Air Act, as now or hereafter amended ("CAA") (42 U.S.C. Section 7401 et
seq.), (f) all regulations promulgated under any of the foregoing, (g) any
local, state or foreign law, statute, regulation or ordinance analogous to any
of the foregoing, and (h) any other federal, state, local, or foreign law
(including any common law), statute, regulation, or ordinance regulating,
prohibiting, or otherwise restricting the placement, discharge, release,
threatened release, generation, treatment, or disposal upon or into any
environmental media of any Hazardous Materials.
"Environmental Noncompliance" shall mean, but is not limited to: (a) the
Release of any Hazardous Material into the environment, any storm drain, sewer,
septic system or publicly owned treatment works, in violation of any effluent or
emission limitations, standards or other criteria or guidelines established by
any Environmental Law; (b) any noncompliance of physical structure, equipment,
process or premises with the requirements of building or fire codes, zoning or
land use regulations or ordinances, conditional use permits and the like; (c)
any noncompliance with federal, state or local requirements governing
occupational safety and health; (d) any operations, procedures, designs, and the
like at or on any Property which do not conform to the statutory or regulatory
requirements of any Environmental Law (including land use regulations and
ordinances) intended to protect public health, welfare and the environment; (e)
the failure to have obtained permits, licenses, variances or other
authorizations of any Governmental Authority necessary for the legal use and/or
operation of any equipment, process, or any activity at any Property; and (f)
the operation and/or use of any process or equipment in violation of any permit
condition, schedule of compliance, administrative or court order and the like,
as any of the foregoing may be applicable to any Property.
"Environmental Reports" shall mean certain Phase I environmental reports
prepared by environmental consultants covering each of the Properties as more
fully shown on Section 3.1(s) of the Disclosure Schedule.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE>
"GAAP" shall mean generally accepted accounting principles, consistently
applied throughout the specified period and in the comparable period in the
immediately preceding year.
"GSSW-REO" shall mean GSSW-REO Ownership Corporation, a Texas corporation.
"General Partnership Interests" shall have the meaning set forth in
Introductory Provision A herein.
"Governmental Authority" shall mean any and all applicable courts, boards,
agencies, commissions, offices, or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city,
departmental or otherwise) whether now or hereafter in existence.
"Ground Lease" shall mean that certain Lease made as of January 22, 1971,
by and between Darrell A. Slack and Ida S. Slack as landlord and APCO NO. 1, a
limited partnership, as tenant, the leasehold interest of which was acquired by
Woodberry Forest-REO, L.P.
"Hazardous Materials" shall mean any substance, product matter, material,
waste, solid, liquid, gas, or pollutant, the generation, storage, disposal,
handling, recycling, release (or threatened release), treatment, discharge, or
emission of which is regulated, prohibited, or limited under any Environmental
Law and shall also include, without limitation, (a) gasoline, diesel fuel, fuel
oil, motor oil, waste oil, and any other petroleum hydrocarbons, including any
additives or other by-products associated therewith, (b) asbestos and
asbestos-containing materials in any form, (c) polychlorinated biphenyls, (d)
any substance the presence of which on any Property (i) requires reporting or
remediation under any Environmental Law; (ii) causes or threatens to cause a
nuisance on any Property or poses or threatens to pose a hazard to the health or
safety of persons on any Property; or (iii) which, if it emanated or migrated
from any Property, could constitute a trespass, nuisance or health or safety
hazard to persons on adjacent property, (e) radon, (f) urea formaldehyde foam
insulation, and (g) underground storage tanks, whether empty, filled or
partially filled with any substance.
"Indemnified Party" shall mean a person or entity claiming indemnification
under ARTICLE IX hereof.
"Indemnifying Party" shall mean a person or entity against whom claims of
indemnification are being asserted under ARTICLE IX hereof.
"IRS" shall mean the United States Internal Revenue Service.
"Law" shall mean all laws, statutes, ordinances, rules, decrees and
regulations of the United States of America or any state, commonwealth, city,
county, municipality or department thereof, including without limitation the
Americans with Disabilities Act.
<PAGE>
"Leases" shall mean all leases, subleases, licenses or other agreements for
the use or occupancy of all or any part of any Property.
"Lien" shall mean any mortgage, pledge, assessment, security interest,
Lease, lien, adverse claim, levy, charge, or other encumbrance of any kind, or
any conditional sale contract, title retention contract, or other contract to
give or to refrain from giving any of the foregoing other than Permitted
Exceptions.
"Limited Partnership Interests" shall have the meaning set forth in
Introductory Provision B herein.
"Material Adverse Effect" shall mean any effect that is materially adverse
to the validity or enforceability of this Agreement, the ability of Seller or
Purchaser, as the case may be, to perform its obligations under this Agreement
or the business or condition of the Company, GSSW-REO and the Property
Partnerships, or any Property individually or taken as a whole.
"Mortgage Liens" shall mean the liens created under the deeds of trust and
mortgages more particularly described on Section 2.2 to the Disclosure Schedule
and securing certain indebtedness as more particularly identified thereon.
"Notification" shall mean any summons, citation, directive, order, claim,
litigation, pleading, investigation, proceeding, judgment, letter, or any other
written communication from any Governmental Authority, any entity or any
individual, concerning any intentional or unintentional act or omission which
has resulted in or which may result in any Environmental Noncompliance.
"Partnership Interests" shall mean the Limited Partnership Interests and
the General Partnership Interests.
"Permits" shall mean all permits, consents, licenses, certificates,
approvals, registrations, and authorizations which are required by any Law for
operation of any Property.
"Permitted Exceptions" shall mean the Permitted Liens and any and all other
restrictions, easements, encumbrances and other exceptions approved by
Purchaser.
"Permitted Liens" shall mean with respect to each Property (a) the Mortgage
Liens, (b) any lien for real property Taxes, assessments, and other governmental
charges that are not due and payable, and (c) all of the matters listed on the
Title Information.
"Person" shall mean any natural person, corporation, general partnership,
limited partnership, proprietorship, trust, union, association, court, tribunal,
agency, government department, commission, self-regulatory organization,
arbitrator, board, bureau, instrumentality, or other entity, enterprise,
authority, or business organization.
<PAGE>
"Property" shall mean the real property and improvements thereon, if any,
owned by a Property Partnership as more fully described in Exhibit "C" attached
hereto.
"Property Partnership" shall mean each limited partnership owner of a
Property as identified on Exhibit "D" attached hereto.
"Property Partnerships' Partnership Agreements" shall mean the limited
partnership agreements and the certificates of limited partnership of each of
the Property Partnerships as each are included in Section 3.1(d) of the
Disclosure Schedule.
"Purchase Price" shall have the meaning set forth in Section 2.2 hereof.
"Purchaser" shall mean Southwest Associates, L.P., a Delaware limited
partnership.
"Purchaser's Knowledge" shall mean the current actual knowledge of Steve
Galiotos, Jeffrey L. Goldberg and Thomas J. Saylak without any duty of inquiry
or investigation.
"Purchaser-Related Persons" shall mean Purchaser, together with their
respective Affiliates, and the officers, directors, employees, agents and
attorneys-in-fact of any such Persons.
"Release" shall mean releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, ejecting, escaping, leaching, disposing,
seeping, infiltrating, draining, or dumping of any Hazardous Material. This term
shall be interpreted to include both the present and past tense, as appropriate.
"Seller" shall mean the Company and GSSW-REO.
"Seller-Related Persons" shall mean Seller, together with their respective
Affiliates, and the officers, directors, employees, agents and attorneys-in-fact
of any such Persons.
"Seller's Tax Return" shall mean all appropriate and necessary Federal,
state and other applicable Tax Returns which include, on a consolidated or any
other reporting basis, the results of operations of the Company, GSSW-REO and
each of the Property Partnerships for all taxable periods ending on or before
the Closing Date.
"SWLIC" shall mean Southwestern Life Insurance Company, a Texas life
insurance company.
"Taxes" shall mean all taxes, charges, fees, levies, guaranty fund
assessments or other similar assessments or liabilities, including without
limitation income, gross receipts, ad valorem, premium, excise, real property,
personal property, windfall profit, sales, use, transfer, licensing,
withholding, employment, payroll, and franchise taxes imposed by the United
States of America or any state, local, or foreign government, or any
subdivision, agency, or other similar Person of the United States or any such
government; and such term shall include any interest, fines,
<PAGE>
penalties, assessments, or additions to tax resulting from, attributable to, or
incurred in connection with any such tax or any contest or dispute thereof.
"Tax Returns" shall mean any report, return, or other information required
to be supplied by the Company, each Property Partnership, GSSW-REO and of each
consolidated or affiliated group of which the Company, each Property Partnership
or GSSW-REO has been a part to a taxing authority in connection with Taxes.
"Title Information" shall mean those matters set forth in Section 3.1(l) of
the Disclosure Schedule.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include each other gender; (b) words using the singular or
plural number also include the plural or singular number, respectively; (c) the
terms "hereof," "herein," "hereby," "hereto," and derivative or similar words
refer to this entire Agreement; (d) the terms "ARTICLE" or "Section" refer to
the specified ARTICLE or Section of this Agreement; (e) the term "party" means,
on the one hand, the Purchaser and, on the other hand, the Seller; (f) the
phrase "in the ordinary course of business and consistent with past practice"
refers to the business, operations, affairs, and practice of the Company which
operations and practice are consistent with the prudent operations and practices
of Persons engaged in the ownership and operation of real properties similar to
the Properties; and (g) all references to "dollars" or "$" refer to currency of
the United States of America.
ARTICLE II
SALE OF INTERESTS AND CLOSING
Section 2.1 Purchase and Sale of Interests. Subject to the terms and
conditions, and in reliance upon the representations and warranties, set forth
in this Agreement, the Company and GSSW-REO agree to sell the Limited
Partnership Interests and the General Partnership Interests, respectively, to
the Purchaser and the Purchaser agrees to purchase the Partnership Interests
from the Company and GSSW-REO at the Closing.
Section 2.2 Purchase Price. The purchase price for the Partnership
Interests is $109,218,558.00, plus $7,250,000.00 delivered in escrow pursuant to
an Escrow Agreement of event date in relation to the Partnership Interests in
GSSW-REO Dallas, L.P., to the extent such Partnership Interests are transferred
as provided therein (the "Purchase Price"). At the Closing, the outstanding
principal balance (as of the Closing Date) of the indebtedness secured by the
Mortgage Liens shall be deducted from the Purchase Price to obtain the cash
portion of the Purchase Price, subject to no other adjustment of any kind except
as expressly set forth in herein. The cash portion of the Purchase Price shall
be payable to the Company and GSSW-REO by the Purchaser at the Closing.
<PAGE>
Section 2.3 Closing.
(a) The Closing will take place at the offices of Winstead Sechrest &
Minick P.C., 5400 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270,
at 10:00 a.m., local time on the Closing Date.
(b) At the Closing, the Purchaser will (i) pay the cash portion of the
Purchase Price to Seller by wire transfer of funds immediately available in
Dallas, Texas, to such account or accounts as Seller specifies and (ii)
deliver to Seller such documents and instruments required to be delivered
by the Purchaser under the terms of this Agreement.
(c) At the Closing, Seller will deliver to the Purchaser (i) the
Assignment of Partnership Interests duly executed by Seller, and (ii) such
other documents and instruments required to be delivered by Seller under
the terms of this Agreement.
Section 2.4 Adjustments as of the Closing Date. Rental income from
each Property, real and personal property ad valorem taxes, insurance
premiums (if and to the extent that policies are continued for periods
subsequent to the Closing Date), utility charges, common area maintenance
charges and operating charges pursuant to any reciprocal easement
agreements or similar agreements, rent and other charges under the Ground
Lease, and other operating expenses of each Property, shall be prorated to
the Closing Date, based upon actual days involved. Except as set forth in
Section 2.5 hereof, Seller shall be entitled to receive all cash in the
Property Partnerships' accounts on the Closing Date (with the exception of
$100 in each Property Partnership account which amount will remain in each
account). Notwithstanding the foregoing, all escrow accounts of the
Property Partnerships which are maintained in connection with the Mortgage
Liens and having an aggregate balance on the Closing Date of $546,298.00
shall remain in place after Closing. Seller shall be responsible for all
real and personal property taxes payable by any Property Partnership for
any period prior to and including the Closing Date. All accrued charges
(including the interest payments on the Mortgage Liens) pursuant to
Contracts and utility charges (whether or not service is continued by
Purchaser) for periods prior to and including the Closing Date shall be
determined as of the Closing Date and paid by Seller ("Accrued Expenses").
Any of such Accrued Expenses for periods prior to and including the Closing
Date which have not been paid and are not reflected on the closing
statement prepared by Seller and Purchaser as of the Closing Date shall be
paid by Seller prior to delinquency (subject to Seller's right to contest
same). Seller shall receive all income of the Property Partnerships for the
Closing Date and bear all expenses of the Property Partnerships for the
Closing Date. No proration shall be made in relation to delinquent rents
existing as of the Closing Date, but Purchaser shall make a good-faith
attempt to cause each Property Partnership to collect the same for Seller's
benefit after the Closing and after first applying any such rental payments
so received to rents and late charges and the costs of collection thereof
in each case accruing after the Closing Date, the remainder of such
collections, if any, shall be remitted to Seller promptly upon receipt by
Purchaser (up to the amount of such delinquent rents); provided, however,
that nothing contained herein shall be construed to require Purchaser to
institute any suit or collection procedure to collect such delinquent
rents. Purchaser need not attempt to collect
<PAGE>
rents that are more than ninety days delinquent and the foregoing
obligation of Purchaser to remit any amounts in respect thereof to Seller
shall also terminate ninety days after the Closing Date. To the extent that
the actual amount of all such charges, expenses and income referred to in
this section are unavailable on the Closing Date, the foregoing prorations
shall be based on estimates using the most recently available statement for
each such item to be prorated (provided that, if the actual amount of real
and personal property ad valorem taxes and special assessments for the
present tax year are not available, the proration shall be based upon the
taxes for the previous tax year) and, if after the Closing Date the actual
amount of any such closing proration that was based on an estimate is
determined to be more or less than the amount adjusted for at Closing, the
parties shall promptly (but no later than the date which is the first
anniversary of the Closing Date) adjust such proration. All obligations
under Leases with tenants set forth on Exhibit "E" attached hereto, shall
remain obligations of the Property Partnership from and after the Closing
Date for periods occurring after the Closing Date. Seller shall promptly
deliver to Purchaser any monies received by any Seller-Related Persons
after the Closing Date that are for the account of Purchaser pursuant to
the provisions of this Section 2.4. Purchaser shall promptly deliver to
Seller any monies received by any Purchaser-Related Persons after the
Closing that are for the account of Seller pursuant to the provisions of
this Section 2.4.
Section 2.5 Security Deposits. All security deposits (including
non-refundable pet deposits in the amount of $125,000.00) and any prepayment of
rental or other sums attributable to any period beyond the Closing Date,
collected (and, except to the extent previously returned to tenants whether
presently held) by any Property Partnership under the terms of any Leases shall
be offset against the Purchase Price; provided, however, in any instance where
state law requires that security deposits be segregated and delivered to the
Purchaser, the deposits so held pursuant to such state law together with any
interest accrued thereon shall be delivered to Purchaser at the Closing and no
such offset against the Purchase Price shall be made with respect to those
deposits.
Section 2.6 Title and Survey Costs. All costs and expenses incurred in
connection with this Agreement or the transactions contemplated herein and
related to title commitments, title updates, owner and mortgagee policies of
title insurance, endorsements, surveys and recording and transfer taxes or
similar related charges shall be the sole responsibility of Purchaser.
Section 2.7 Insurance Deductibles. Seller shall pay to Purchaser within 30
days after notice from Purchaser the amount of any insurance deductibles
pursuant to its existing insurance coverages which may be incurred by a Property
Partnership in relation to any litigation matter described on Section 3.1(p) of
the Disclosure Schedule.
<PAGE>
ARTICLE III
COMPANY'S AND GSSW-REO'S REPRESENTATIONS AND WARRANTIES
Section 3.1 Warranties and Representations of the Company. Company
represents and warrants to Purchaser as of the date of this Agreement and as of
the Closing Date that:
(a) Organization of the Company and Property Partnerships. The Company
and each of the Property Partnerships are limited partnerships duly
organized and validly existing under the laws of the state set opposite
their name on Section 3.1(a) of the Disclosure Schedule and each has the
requisite organizational power and authority to carry out its business as
presently conducted. The principal place of business of the Company is in
Dallas, Texas.
(b) Authority. The execution and delivery of this Agreement by the
Company and each other agreement, instrument, certificate and document to
be executed by the Company hereunder and the performance by the Company of
its obligations under this Agreement have been duly and validly authorized
by all necessary partnership action on the part of the Company. This
Agreement constitutes a legal, valid, and binding obligation of the Company
and is enforceable against the Company in accordance with its terms, except
to the extent that (i) enforcement may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium, or similar Laws now or
hereafter in effect relating to or limiting creditors' rights generally and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the
discretion of the court or other similar person or entity before which any
proceeding therefor may be brought.
(c) Partnership Interests.
(i) The Partnership Interests of the Property Partnerships
consist solely of the Limited Partnership Interests which are
outstanding and 100% owned legally and beneficially by the Company and
the General Partnership Interests which are outstanding and are 100%
owned legally and beneficially by GSSW-REO;
(ii) All of the Limited Partnership Interests are owned by the
Company and all of the General Partnership Interests are owned by
GSSW-REO and each is free and clear of all Liens, and neither the
Limited Partnership Interests nor the General Partnership Interests is
the subject of any Contract (other than this Agreement) under which
any such Lien might arise. There are no outstanding securities,
rights, subscriptions, warrants, options, or Contracts (except for
this Agreement) that give any Person the right to purchase or
otherwise receive or be issued any partnership interest
<PAGE>
in the Company or any Property Partnership or any rights to
participate in the equity or income of the Company (except for this
Agreement and the Partnership Agreement of the Company) or any
Property Partnership.
(d) Partnership Agreements; Approval of Partners. The Property
Partnerships' Partnership Agreements are attached in Section 3.1(d) of the
Disclosure Schedule and each is an accurate copy of each such agreement. No
amendments or modifications have been made to any of such agreements except
as shown on and attached in Section 3.1(d) of the Disclosure Schedule. The
Company has obtained all necessary approvals from the partners of the
Company and the partners of the Property Partnerships to allow the
Purchaser to acquire the Partnership Interests on the Closing Date.
(e) No Conflicts or Violations. The execution and delivery of this
Agreement by the Company does not, and the performance by the Company of
the Company's obligations under this Agreement and the consummation of the
transactions contemplated hereby will not:
(i) violate any term or provision of any Law or any writ,
judgment, decree, or injunction applicable to the Company or any
Property Partnership, except such violations that do not have a
Material Adverse Effect on the Company;
(ii) conflict with or result in a violation or breach of any of
the provisions of the partnership agreement of the Company or any
Property Partnership, except such conflicts, violations, or breaches
that do not have a Material Adverse Effect on the Company; or
(iii) conflict with or result in a violation or breach of any
Contract to which the Company or any Property Partnership is a party,
except such conflicts, violations, or breaches that do not have a
Material Adverse Effect on the Company.
(f) Controlled Entities. Except as shown on Section 3.1(f) of the
Disclosure Schedule, the Property Partnerships do not (nor in the past did
the Property Partnerships) own (legally or beneficially) or Control (either
directly or indirectly) any Person or any other Assets and Properties or
conduct or engage (nor in the past did the Property Partnerships conduct or
engage) in any other businesses or operations.
(g) Taxes.
(i) Except as disclosed in Section 3.1(g)(i) of the Disclosure
Schedule, all Federal, state and other applicable Tax Returns required
to be filed by or with respect to the Property Partnerships have been
filed
<PAGE>
and all Taxes that are due and payable by the Property Partnership
have been paid.
(ii) Except as shown on Section 3.1(g)(ii) of the Disclosure
Schedule no deficiencies for Federal, state or other applicable Taxes
have been claimed, assessed or, to Company's Knowledge, proposed
against the Company or GSSW-REO by any Governmental Authority. To the
Company's Knowledge, except as set forth in Section 3.1(g)(ii) of the
Disclosure Schedule, there are no pending or threatened audits,
investigations or claims for or relating to any liability in respect
of Federal, state or other applicable Taxes, and there are no matters
under discussion with any Governmental Authorities with respect to
Federal, state or other applicable Taxes that could result in an
assessment of Federal, state or other applicable Taxes against the
Company or GSSW-REO. Audits of Federal, state or other applicable Tax
Returns by the relevant taxing authorities have been completed for
each period shown on Section 3.1(g)(ii) of the Disclosure Schedule,
and, except as shown on Section 3.1(g)(ii) of the Disclosure Schedule,
none of the Property Partnerships has been notified that any taxing
authority intends to audit a Federal, state or other applicable Tax
Return for any other period. Complete copies of all Federal income tax
schedules and reports relating to the operation of the Company and
each of the Property Partnerships and all reports received by the
Company from the IRS relating to examinations thereof have been made
available for Purchaser's review.
(iii) Since its creation each Property Partnership has maintained
a status such that each Property Partnership is taxed as a partnership
for Federal, state and local tax purposes.
(h) Compliance With Laws. Except as shown on Section 3.1(h) of the
Disclosure Schedule, no Property Partnership (as opposed to the Property
owned by such Property Partnership) is in violation of any Law or any writ,
judgment, decree, injunction, or similar order applicable to such entity,
which violation has or may reasonably be expected to have a Material
Adverse Effect.
(i) Financial Statements. Section 3.1(i) of the Disclosure
Schedule sets forth (i) the audited consolidated balance sheets and
statements of income partners' capital accounts and cash flow as of
and for the fiscal year ended 1995 for the Company which includes all
assets and liabilities of GSSW-REO and of the respective Property
Partnerships as of the date thereof, (ii) the unaudited consolidated
balance sheets and statements of income, partners' capital accounts
and cash flow statements as of and for the fiscal year ended 1995 for
each of the Property Partnerships and (iii) unaudited
<PAGE>
balance sheets and statements of income, partners' capital accounts
and cash flow statements as and for the months ended October 31, 1996
for each of the Property Partnerships (collectively the "Financial
Statements"). The Financial Statements (including the notes thereto)
have been prepared in accordance with GAAP and present fairly the
financial condition of the Property Partnerships for such periods
(including all liabilities or obligations of any kind (whether
accrued, absolute, fixed or contingent) of the Property Partnership
for such period and no other material liabilities have been incurred
for the period commencing November 1, 1996 and ending on the Closing
Date other than as set forth on the Disclosure Schedule and there has
been no change in the financial condition as reflected therein since
the dates of such Financial Statements that would have a Material
Adverse Effect.
(j) Intercompany Liabilities. Except as reflected in the
Financial Statements, or except as shown on Section 3.1(j) of the
Disclosure Schedule, (i) there are no Liabilities between any Property
Partnership and the Company or any other Affiliate of the Company, and
(ii) neither the Company nor any Affiliate of the Company provides or
causes to be provided to the Property Partnerships any products,
services, equipment, facilities, or similar items.
(k) Operations Insurance. Section 3.1(k) of the Disclosure
Schedule contains a complete list of all material fire and casualty,
liability and other similar insurance Contracts that insure the
business, operations or affairs of the Company or any Property
Partnership or affect or relate to the ownership, use or operations of
the Properties. All such insurance is in full force and effect and to
the Company's Knowledge is with financially sound and reputable
insurers and, in light of the respective business, operations, and
affairs of the Company, is in amounts and provides coverage that are
reasonable and customary for Persons in similar businesses.
(l) Title to Property.
(i) Each Property Partnership other than Woodberry
Forest-REO, L.P. has good and indefeasible fee simple title to
the Property it owns, free and clear of all Liens, conditions,
exceptions, or reservations, except the Permitted Exceptions in
respect of each such Property.
(ii) Woodberry Forest-REO, L.P. has good leasehold title to
the Property known as Woodberry Forest free and clear of all
Liens, conditions, exceptions, or reservations, except the
Permitted Exceptions in respect of such Property.
(iii) With respect to the Ground Lease: (A) such Ground
Lease is in full force and effect; (B) the Company has delivered
to Purchaser a correct copy of such Ground Lease (including all
amendments, modifications and supplements thereto); (C) neither
the Company
<PAGE>
nor the Property Partnership which is a party to such Ground
Lease has received any notice of default under such Ground Lease;
(D) neither the Property Partnership that is a party to the
Ground Lease nor to the Company's Knowledge the lessor under the
Ground Lease is in default thereunder; and (E) rent and other
charges in respect of the Ground Lease have been paid through
December 31, 1996.
(m) Not a Foreign Person. Seller is not a "foreign person" but is
a "United States person" as such terms are defined in the Foreign
Investment in Real Property Tax Act of 1980 and Section 1445 and 7701
of the Code; that is to say, Seller is a citizen or resident of the
United States, a domestic partnership, a domestic corporation, or an
estate or trust which is not a foreign estate or foreign trust within
the meaning of Section 7701(a)(31) of the Code.
(n) No Condemnation. To the Company's Knowledge, there is no
pending condemnation proceeding affecting any Property or any portion
thereof, and neither Seller nor any Property Partnership has received
any written notice of any such proceeding, and neither Seller nor any
Property Partnership has received any written notice or has any
knowledge that any such proceeding is contemplated.
(o) No Violations of Law. Except as shown on Section 3.1(o) of
the Disclosure Schedule, to the Company's Knowledge, the continued
ownership, operation, use, and occupancy of each Property by the
respective Property Partnership does not violate any Law. To the
Company's Knowledge, there are no violations of any Law affecting any
portion of any Property and to the Company's Knowledge, no written
notice of any such violation by any Governmental Authority has been
received by any Property Partnership.
(p) No Litigation. Except as shown on Section 3.1(p) to the
Disclosure Schedule there is no action, suit, proceeding, arbitration,
unsatisfied order or judgment, governmental investigation or claim
against or affecting any Property or any portion thereof, or affecting
any Property Partnership or relating to or arising out of the
ownership, operation, use or occupancy of any Property, pending or
being prosecuted before or by any Governmental Authority or otherwise
of which Seller has received notice nor, to the Company's Knowledge,
is any such action, suit, proceeding, arbitration, unsatisfied order
or judgment, governmental investigation or claim threatened or being
asserted.
(q) No Other Contracts. Except for the Permitted Exceptions and
as shown on Section 3.1(q) of the Disclosure Schedule, there are no
Contracts relating to any Property or any portion thereof.
<PAGE>
(r) No Bankruptcy or Insolvency Proceedings. There are no
attachments, executions, assignments for the benefit of creditors,
receiverships, conservatorships or voluntary or involuntary
proceedings in bankruptcy or pursuant to any other debtor relief laws
filed by SWLIC, the Company, GSSW-REO, any Property Partnership or
pending against any Property Partnership or any Property.
(s) Environmental. To the Company's Knowledge, there is no
Environmental Noncompliance with respect to any Property, except as
shown on the Environmental Reports set forth on Schedule 3.1(s) of the
Disclosure Schedule. No Property Partnership has received any
Notification from any Governmental Authority alleging any violation of
any Environmental Law.
(t) Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company
and GSSW-REO directly with Purchaser, without the intervention of any
Person on behalf of the Company and GSSW-REO in such manner as to give
rise to any valid claim by any Person against Purchaser for a finder's
fee, brokerage commission, or similar payment.
(u) Leases; Rent Rolls. With respect to each Property, a rent
roll as of December 24, 1996 is attached as Section 3.1(u) of the
Disclosure Schedule and each of such rent rolls is true and complete
in all material respects. No tenant at any Property that is
multifamily residential property (a "Residential Property") is subject
to any rent-control Law. None of the Residential Properties is subject
to any Law relating to low-income or moderate-income housing or any
rent-subsidy program provided by any Governmental Authority. Except as
shown on Section 3.1(u) of the Disclosure Schedule, no rent concession
or deferral agreements (whether written or oral) are presently in
effect with respect to any tenant of the Residential Properties. With
respect to any Property which is a commercial or retail property (a
"Commercial Property"), such Commercial Property is not subject to any
Lease except as disclosed on the rent roll. The Company has provided
Purchaser with true and correct copies of all Leases (including
amendments and modifications thereto) relating to such Commercial
Properties. There are no outstanding tenant improvement allowances,
outstanding leasing commissions or deferred rent abatements for any
Commercial Property Leases except as shown on Exhibit "E". The
Commercial Property Leases are in full force and effect and neither
the Company nor any Property Partnership has delivered or received any
notice of any default under any such Commercial Property Leases which
has not been resolved as of the date hereof.
(v) Employees; Employment Contracts. Neither the Company,
GSSW-REO, nor any Property Partnership (i) has (nor have any of such
parties ever had) any employees, (ii) is (nor have any of such parties
ever been) a party to or is bound by any collective bargaining
agreement or other contract with a labor union, or (iii) has (nor have
any of such parties had) any obligations or liabilities arising from
or relating to the employment of any individual and did not at any
time on or after the effective date of
<PAGE>
ERISA maintain, contribute to or otherwise have any obligation
with respect to any "employee benefit plan" within the meaning of
section 3(3) of ERISA.
(w) Consents. Except as set forth on Section 3.1(w) of the
Disclosure Schedule, no consent, license, approval, order, permit or
authorization of any Governmental Agency is required to be obtained or
made, and no consent of any mortgagee under any of the Mortgage Liens
is required to be obtained and no consent of any other third party,
including the landlord under the Ground Lease, is required to be
obtained by the Seller or any of the Property Partnerships in
connection with the execution, delivery and performance of this
Agreement and any of the transactions contemplated hereby.
(x) Mortgage Liens. Section 2.2 to the Disclosure Schedule
includes true and correct copies of the promissory notes, mortgages
and deeds of trust (including any and all amendments and modifications
thereto) constituting the Mortgage Liens. The outstanding principal
balances of the indebtedness as of December 31, 1996 (after deducting
the January 1, 1997 scheduled payments which have been paid by Seller)
and the maturity dates are as shown on Section 2.2 and to the
Company's Knowledge, no default exists under any of the notes,
mortgages or deeds of trust which remains uncured.
(y) Personal Property. Each Property Partnership has good title
to the machinery, apparatus, equipment or other fixtures, furniture,
furnishings, fittings, appliances and other articles of personal
property located at such Property and used in connection with such
Property except for (i) software owned by the management companies
managing the Properties (ii) property owned by tenants; and (iii) the
items set forth on Section 3.1(q) of the Disclosure Schedule.
(z) Taxes and Assessments. Neither the Company nor any Property
Partnership has received any notice of, nor to the Company's Knowledge
are there any, material non-recurring or special taxes or assessments
or any planned public improvements that may result in a material
non-recurring or special tax or assessment with respect to any
Property Partnership or any Property other than as set forth in the
Permitted Exceptions.
(aa) Mechanic's Liens. To the Company's Knowledge, there are no
disputes pending between any Property Partnership and any mechanic or
materialman with respect to work or materials furnished to any
Property on behalf of any Property Partnership which could or is
likely to result in a mechanic's or materialman's lien being filed
against any Property and Seller is not aware of any work which has
been performed or materials which have been supplied which are likely
to give rise to such a dispute.
(bb) Streets and Roads. To the Company's Knowledge, no change in
the route, grade or width of, or otherwise affecting any street or
road adjacent to or serving any Property that would have a Material
Adverse Effect has been proposed or is contemplated.
<PAGE>
(cc) Operation of Properties. Since November 15, 1996, Seller has
caused each Property to be managed in the ordinary course of business
and consistent with past practices.
Section 3.2 Warranties and Representations of GSSW-REO. GSSW-REO represents
and warrants to Purchaser as of the date of this Agreement and as of the Closing
Date that:
(a) Organization of GSSW-REO. GSSW-REO is a corporation duly organized
and validly existing under the laws of the state of Texas and has the
requisite corporate power and authority to carry out its business as
presently conducted. The principal place of business of GSSW-REO is in
Dallas, Texas.
(b) Authority. The execution and delivery of this Agreement by
GSSW-REO and the performance by GSSW-REO of its obligations under this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of the GSSW-REO. This Agreement constitutes a legal,
valid, and binding obligation of GSSW-REO and is enforceable against the
GSSW-REO in accordance with its terms, except to the extent that (i)
enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, or similar Laws now or hereafter in effect
relating to or limiting creditors' rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar person or entity before which any proceeding therefor may be
brought.
(c) No Conflicts or Violations. The execution and delivery of this
Agreement by GSSW-REO does not, and the performance by GSSW-REO of the
GSSW-REO's obligations under this Agreement will not:
(i) violate any term or provision of any Law or any writ,
judgment, decree, or injunction applicable to GSSW-REO, except such
violations that do not have a Material Adverse Effect;
(ii) conflict with or result in a violation or breach of any of
the provisions of the articles or certificate of incorporation or
bylaws of GSSW-REO, except such conflicts, violations, or breaches
that do not have a Material Adverse Effect; or
(iii) conflict with or result in a violation or breach of any
Contract to which the GSSW-REO is a party, except such conflicts,
violations, or breaches that do not have a Material Adverse Effect.
<PAGE>
ARTICLE IV
SELLER'S COVENANTS
Section 4.1 Assignment of Claims. On or before the Closing Date the
Property Partnerships shall transfer to the Company, or its designee, to the
extent such claims shall be transferable, pursuant to the assignment attached
hereto as Exhibit "F" all insurance claims filed or pending by the Property
Partnerships as of the Closing Date and there shall be no reduction in the
Purchase Price due to such transfers. If the claims set forth on Exhibit"F" are
not transferable, Purchaser or any Purchaser-Related Person agrees to transfer
any and all recoveries in relation to such claims to Seller promptly upon
receipt of any and all such recoveries less any actual expenses incurred in
collecting such recoveries.
Section 4.2 Books and Records. On the Closing Date, the Seller will deliver
to Purchaser or will make available to Purchaser all books and records of each
of the Property Partnerships that are in the possession of Seller, including,
without limitation, all plans and specifications relating to any Property (in
Seller's possession), all of the Leases, Contracts, documents or instruments
creating or evidencing the indebtedness secured by the Mortgage Liens or
otherwise related to the Mortgage Liens, the Title Information, all other
insurance policies and certificates related to the Properties and any and all
bank account records related to any security deposits required by state law to
be separately maintained as described in Section 2.5 and any other bank account
which will continue to be owned by any Property Partnership after the Closing
Date. If at any time after the Closing Date the Company or GSSW-REO discovers in
its possession or under its control any other books and records of any Property
Partnership, the Company or GSSW-REO, as applicable, will deliver such books and
records to Purchaser.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
Section 5.1 Purchaser hereby represents and warrants to Seller as of the
date hereof and as of the Closing Date as follows:
(a) Organization. Purchaser is a limited partnership duly organized,
validly existing, and in good standing under the Laws of Delaware and has
the requisite partnership power and authority to enter into this Agreement
and to perform its obligations under this Agreement.
(b) Authority. The execution and delivery of this Agreement by
Purchaser and the performance by Purchaser of its obligations under this
Agreement have been duly and validly authorized by all requisite
partnership action on the part of Purchaser. This Agreement constitutes a
legal, valid, and binding obligation of Purchaser and is enforceable
against Purchaser in accordance with its terms, except to the extent that
(i)
<PAGE>
enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, or similar Laws now or hereafter in effect
relating to or limiting creditors, rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar person or entity before which any proceeding therefor may be
brought.
(c) No Conflicts or Violations. The execution and delivery of this
Agreement by Purchaser do not, and the performance by Purchaser of
Purchaser's obligations under this Agreement will not:
(i) violate any term or provision of any applicable Law or any
writ, judgment, decree, or injunction applicable to Purchaser, except
such violations that do not have a Material Adverse Effect;
(ii) conflict with or result in a violation or breach of any of
the provisions of the articles or certificate of incorporation or
bylaws of Purchaser, except such conflicts, violations, or breaches
that do not have a Material Adverse Effect; or
(iii) conflict with or result in a violation or breach of any
Contract to which Purchaser is a party, except such conflicts,
violations, or breaches that do not have a Material Adverse Effect.
(d) Litigation. There is no action, suit, or proceeding pending, or
(to the knowledge of Purchaser) threatened, against Purchaser, at Law or in
equity, in, before, or by any person or entity that, if adversely
determined, would have a Material Adverse Effect.
(e) Purchase for Investment. The Partnership Interests will be
acquired by Purchaser for its own account for the purpose of investment and
not for the purpose or with the intent of a distribution or other sale and
disposition thereof. Purchaser will refrain from transferring or otherwise
disposing of any of the Partnership Interests, or any interest therein, in
such manner as to violate any provisions of the Securities Act of 1933, as
amended, or of any securities Laws of any state or other jurisdiction
regulating the disposition thereof.
(f) Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser
directly with the Company and its Affiliates, without the intervention of
any Person on behalf of Purchaser in such manner as to give rise to any
valid claim by any Person against the Company or its Affiliates for a
finder's fee, brokerage commission, or similar payment.
<PAGE>
Section 5.2 Properties. WITH RESPECT TO THE INTEREST IN EACH PROPERTY
BEING ACQUIRED BY PURCHASER BY VIRTUE OF THE ASSIGNMENT OF THE PARTNERSHIP
INTERESTS PROVIDED HEREIN, EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE
INTEREST IN EACH PROPERTY EXCEPT AS EXPRESSLY PROVIDED HEREIN TO THE
CONTRARY IS ACQUIRED ON AN AS IS, WHERE IS AND WITH ALL FAULTS BASIS,
WITHOUT REPRESENTATIONS, WARRANTIES OR COVENANTS, EXPRESS OR IMPLIED, OF
ANY KIND OR NATURE. PURCHASER HEREBY WAIVES AND RELINQUISHES ALL RIGHTS AND
PRIVILEGES ARISING OUT OF, OR WITH RESPECT OR IN RELATION TO, ANY
REPRESENTATIONS, WARRANTIES OR COVENANTS, WHETHER EXPRESS OR IMPLIED, WHICH
MAY HAVE BEEN MADE OR GIVEN, OR WHICH MAY HAVE BEEN DEEMED TO HAVE BEEN
MADE OR GIVEN, BY THE SELLER OR SELLER-RELATED PERSONS EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED HEREIN. EXCEPT AS SPECIFICALLY PROVIDED HEREIN,
PURCHASER HEREBY TAKES SUBJECT TO ALL RISK AND LIABILITY (AND AGREES THAT
EXCEPT AS SPECIFICALLY PROVIDED NEITHER THE SELLER OR SELLER-RELATED
PERSONS SHALL BE LIABLE FOR ANY SPECIAL, DIRECT, INDIRECT, CONSEQUENTIAL OR
OTHER DAMAGES) RESULTING OR ARISING FROM OR RELATING TO THE OWNERSHIP, USE,
CONDITION, LOCATION, MAINTENANCE, REPAIR, OR OPERATION OF ANY PROPERTY.
WITHOUT LIMITING THE ABOVE GENERAL PROVISIONS, IT IS UNDERSTOOD AND
AGREED THAT EXCEPT AS EXPRESSLY PROVIDED HEREIN TO THE CONTRARY, NEITHER
THE SELLER NOR SELLER-RELATED PERSONS IS MAKING AND SPECIFICALLY DISCLAIMS
ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR
IMPLIED, AS TO (1) MATTERS OF TITLE, (2) ZONING, (3) TAX CONSEQUENCES, (4)
PHYSICAL OR ENVIRONMENTAL CONDITIONS, (5) AVAILABILITY OF ACCESS, INGRESS
OR EGRESS, (6) OPERATING HISTORY OR PROJECTIONS, (7) VALUATION, (8)
GOVERNMENTAL APPROVALS, (9) GOVERNMENTAL REGULATIONS OR ANY OTHER MATTER OR
THING RELATING TO OR AFFECTING ANY PROPERTY, INCLUDING, WITHOUT LIMITATION:
(A) THE VALUE, CONDITION, MERCHANTABILITY, MARKETABILITY, PROFITABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OF ANY PROPERTY, (B)
THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS INCORPORATED INTO
ANY PROPERTY, AND (C) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF
REPAIR OF ANY PROPERTY. PURCHASER FURTHER EXPRESSLY ACKNOWLEDGES AND AGREES
THAT EXCEPT AS SPECIFICALLY PROVIDED, NEITHER THE SELLER NOR SELLER-RELATED
PERSONS IS REPRESENTING OR WARRANTING THAT ANYTHING CAN OR WILL BE
ACCOMPLISHED THROUGH PURCHASER'S OR THE SELLER NOR SELLER-RELATED PERSONS
EFFORTS WITH REGARD TO THE PLANNING, PLATTING OR ZONING PROCESS OF ANY
CITY, COUNTY, OR ANY OTHER GOVERNMENTAL OR MUNICIPAL AUTHORITIES, BOARDS OR
ENTITIES IN RELATION TO ANY PROPERTY. PURCHASER FURTHER ACKNOWLEDGES THAT
NEITHER THE SELLER NOR SELLER-RELATED PERSONS HAS WARRANTED, AND DOES NOT
HEREBY WARRANT,
<PAGE>
THAT, EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ANY PROPERTY NOW OR IN THE
FUTURE WILL MEET OR COMPLY WITH THE REQUIREMENTS OF ANY SAFETY CODE,
ENVIRONMENTAL LAW OR REGULATION OF THE STATE, CITY, COUNTY, OR ANY
AUTHORITY, BOARD, AGENCY OR OTHER ENTITY HAVING AUTHORITY OR JURISDICTION
OVER ANY OF THE PROPERTIES.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder are subject to the fulfillment, at
or before the Closing, of each of the following conditions (all or any of which
may be waived in whole or in part by Purchaser):
Section 6.1 Representations and Warranties. The representations and
warranties made by the Company and GSSW-REO in this Agreement and the
disclosures of the Company and GSSW-REO in the Disclosure Schedule and all other
schedules and exhibits attached hereto shall be true in all material respects as
of the date hereof and shall be true in all material respects on and as of the
Closing Date as though such representations, warranties and disclosures were
made on and as of the Closing Date.
Section 6.2 Performance. Seller shall have performed and complied in all
material respects with all agreements, covenants, obligations, and conditions
required by this Agreement to be so performed or complied with by Seller at or
before the Closing Date.
Section 6.3 No Injunction. There shall not be in effect on the Closing Date
any writ, judgment, injunction, decree, or similar order of any court or
Governmental Authority, or otherwise, restraining, enjoining, or otherwise
preventing consummation of any of the transactions contemplated by this
Agreement.
Section 6.4 No Proceeding or Litigation. There shall not be instituted,
pending, or (to the best knowledge of Purchaser or Seller) threatened, any
action, suit, investigation, or other proceeding in, before, or by any court or
Governmental Authority to restrain, enjoin, or otherwise prevent consummation of
any of the transactions contemplated by this Agreement.
Section 6.5 Seller's Closing Deliveries. Seller shall have delivered to
Purchaser on or before the Closing the following:
(i) the Assignment of Partnership Interests;
(ii) FIRPTA Certificates; and
<PAGE>
(iii) such other documents and instruments as may be reasonably
required in order to consummate the transactions contemplated hereunder.
Section 6.6 Termination of Management Agreements. All Management Agreements
listed on Schedule 3.1(q) of the Disclosure Schedule shall have been terminated
by Seller as of the Closing Date. Seller and Purchaser shall each pay one-half
of the amount of any sums which are payable under such Management Agreements by
reason of such termination as of the Closing Date, but in no event shall
Purchaser be responsible for more than $60,000 of such obligations. The
provisions of this Section 6.5 shall surviving Closing.
Section 6.7 Insurance. The Seller will cause each Property Partnership to
cancel existing insurance coverages (including casualty and liability coverage)
with respect to each Property as of midnight on the Closing Date at no cost or
expense to Purchaser.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the fulfillment, at or
before the Closing, of each of the following conditions (all or any of which may
be waived in whole or in part by Seller):
Section 7.1 Representations and Warranties. The representations and
warranties made by Purchaser in this Agreement shall be true in all material
respects as of the date hereof and shall be true in all material respects on and
as of the Closing Date as though such representations and warranties were made
on and as of the Closing Date.
Section 7.2 Performance. Purchaser shall have performed and complied in all
material respects with all agreements, covenants, obligations, and conditions
required by this Agreement to be so performed or complied with by Purchaser at
or before the Closing Date.
Section 7.3 No Injunction. There shall not be in effect on the Closing Date
any writ, judgment, injunction, decree, or similar order of any court or
Governmental Authority, or otherwise, restraining, enjoining, or otherwise
preventing consummation of any of the transactions contemplated by this
Agreement.
Section 7.4 No Proceeding or Litigation. There shall not be instituted,
pending, or (to the knowledge of Purchaser or Seller) threatened, any action,
suit, investigation, or other proceeding in, before, or by any court or
Governmental Authority to restrain, enjoin, or otherwise prevent consummation of
any of the transactions contemplated by this Agreement.
<PAGE>
Section 7.5 Purchaser's Closing Deliveries. Purchaser shall have delivered
to Seller on or before Closing the following:
(i) the Purchase Price in funds immediately available in Dallas,
Texas; and
(ii) such other documents and instruments as may be reasonably
required in order to consummate the transactions contemplated hereunder.
ARTICLE VIII
SURVIVAL OF PROVISIONS
The provisions in Section 2.4, Section 2.5, Section 2.7, Section 4.1,
Section 5.2, Section 6.6, Section 6.7, ARTICLE IX, ARTICLE X and Section 11.5 of
this Agreement shall survive the Closing hereunder. The representations,
warranties and covenants respectively made by Seller and Purchaser in this
Agreement, in the Disclosure Schedule, and in any certificate delivered to
Purchaser or Seller hereunder will not survive the Closing hereunder except in
accordance with the provisions of ARTICLE IX. Seller has requested tenant
estoppel certificates from tenants of Commercial Properties and the
representations and warranties of Seller relating to Commercial Property Leases
set forth in the last two sentences of Section 3.1(u) shall be automatically
extinguished and of no effect as to any Commercial Lease for which Purchaser is
provided an executed tenant estoppel certificate following Closing which
conforms in all material respects to Seller's representations and warranties
contained in the last two sentences of Section 3.1(u).
ARTICLE IX
INDEMNIFICATION
Section 9.1 Indemnification.
(a) Subject to the provisions of Section 9.4 hereof, SWLIC agrees to
indemnify each Purchaser-Related Person and each Property Partnership in
respect of, and hold each of them harmless against any and all Damages
resulting from or relating to (i) all liabilities and the performance of
all obligations of the Property Partnerships arising or accruing prior to
the Closing Date (including any litigation arising prior to the Closing
whether Seller had any knowledge of such litigation); and (ii) any
misrepresentation or breach of warranty on the part of the Company or
GSSW-REO made as a part of or contained in Sections 3.1 or 3.2 in this
Agreement, provided, however, no indemnification shall be available under
this Section 9.1(a) with respect to any breaches of any representations or
warranties of the Company, if such breaches and the materiality thereof
were within Purchaser's Knowledge prior to Closing.
<PAGE>
(b) Subject to the provisions of Section 9.4 hereof, Purchaser agrees
to indemnify each Seller-Related Persons in respect of, and hold each of
them harmless against, any and all Damages resulting from or relating to
(i) any misrepresentation, breach of warranty, or nonfulfillment of or
failure to perform any covenant or agreement on the part of Purchaser made
as a part of or contained in this Agreement or any certificate delivered by
or for Purchaser, and (ii) all liabilities and the performance of all
obligations of the Property Partnerships arising or accruing from and after
the Closing Date.
Section 9.2 Method of Asserting Claims. All claims for indemnification by
any Indemnified Party under Section 9.1 hereof will be asserted and resolved as
follows:
(a) In the event any claim or demand for which an Indemnifying Party
may be liable for Damages to an Indemnified Party under Section 9.1 hereof
is asserted against or sought to be collected from such Indemnified Party
by a Person other than the Company, GSSW-REO, any Property Partnership, any
Purchaser-Related Persons or any Seller-Related Persons ("Third Party
Claim"), the Indemnified Party will deliver a Claim Notice with reasonable
promptness to the Indemnifying Party; provided, however, that except as set
forth in Section 9.2(d) hereof, no Claim Notice will be required with
respect to any action, suit, investigation, or proceeding that is in
existence on the Closing Date. If the Indemnified Party fails to provide
the Indemnifying Party with the Claim Notice required by the preceding
sentence at least 14 calendar days before the date on which the
Indemnifying Party's ability to defend against the Third Party Claim is
irrevocably prejudiced by the Indemnified Party's failure to provide such
Claim Notice, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such portion of the Third Party Claim as
to which the Indemnifying Party's ability to defend has been irrevocably
prejudiced by such failure of the Indemnified Party; however, the foregoing
limitation shall not be applicable as to Third Party Claims of which the
Indemnified Party did not have notice prior to such 14th day. The
Indemnifying Party will notify the Indemnified Party with reasonable
promptness after the Indemnifying Party's receipt of a Claim Notice, but in
all events within 7 calendar days after receipt thereof ("Notice Period"),
of whether the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such
Third Party Claim and whether the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend the Indemnified Party
against such Third Party Claim. If the Indemnifying Party disputes the
liability of the Indemnifying Party to the Indemnified Party hereunder with
respect to such Third Party Claim, the Indemnifying Party and Indemnified
Party will negotiate in good faith for a period of thirty days failing
resolution of which the matter shall be submitted for arbitration in
accordance with the provisions of Section 9.6 below. A failure of the
Indemnifying Party to respond to a Claim Notice within the period required
shall be deemed to constitute a dispute of the claim described in such
Claim Notice by the Indemnifying Party.
<PAGE>
(b) If the Indemnifying Party notifies the Indemnified Party within
the Notice Period or at any time thereafter that the Indemnifying Party
(without any reservation of rights) does not dispute its liability to the
Indemnified Party and that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
ARTICLE IX (the "Non-Dispute Notice"), or in the event any matter submitted
for arbitration pursuant to Section 9.6 results in a determination that the
Third Party Claim is subject to indemnification pursuant to the terms
hereof (the "Arbitration Determination"), then the Indemnifying Party will
have the right to defend, at its sole cost and expense, such Third Party
Claim by all appropriate proceedings, which proceedings will be diligently
prosecuted by the Indemnifying Party to a final conclusion or will be
settled at the discretion of the Indemnifying Party (with the consent of
the Indemnified Party, which consent will not be withheld or delayed
unreasonably). Any legal counsel engaged by the Indemnifying Party to
defend a Third Party Claim shall be approved by the Indemnified Party, such
approval not to be unreasonably withheld or delayed. From the date of the
Non-Dispute Notice or Arbitration Determination, as applicable, the
Indemnifying Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the
Indemnified Party may, at any time prior to its receipt of the Non-Dispute
Notice or the Arbitration Determination, as applicable, file any motion,
answer, or other pleadings that the Indemnified Party may deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and
not irrevocably prejudicial to the Indemnifying Party (it being understood
and agreed that, except as provided in Section 9.2(c) hereof, if an
Indemnified Party takes any such action that is irrevocably prejudicial and
conclusively causes a final adjudication that is materially adverse to the
Indemnifying Party during the Notice Period or thereafter if the
Indemnifying Party has given notice to the Indemnified Party of its desire
to defend the Third Party Claim, or prior to the Arbitration Determination,
the Indemnifying Party will be relieved of its obligations hereunder with
respect to the portion of such Third Party Claim irrevocably prejudiced by
the Indemnified Party's action); and provided further, that if requested by
the Indemnifying Party, the Indemnified Party agrees, at the sole cost and
expense of the Indemnifying Party (except that the Indemnifying Party shall
not be responsible for any attorneys fees of the Indemnified Party unless
the retention of such attorneys is required by the Indemnifying Party), to
cooperate with the Indemnifying Party and its counsel in contesting any
Third Party Claim that the Indemnifying Party elects to contest, or, if
appropriate and related to the Third Party Claim in question, in making any
counterclaim against the Person asserting the Third Party Claim, or any
cross-complaint against any Person (other than the Indemnified Party or any
of its Affiliates). The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by
the Indemnifying Party pursuant to this Section 9.2(b), but all such
settlements shall be subject to the Indemnified Party's approval, and
except as provided in the preceding sentence, the Indemnified Party will
bear its own costs and expenses with respect to such participation.
(c) If the Indemnifying Party fails to provide the Non-Dispute Notice
to the Indemnified Party (without any reservation of rights) with respect
to the Third Party
<PAGE>
Claim pursuant to this ARTICLE IX, or if the Indemnifying Party fails to
diligently and promptly prosecute or settle the Third Party Claim either
following the Arbitration Determination or after the Indemnifying Party
gives the Non-Dispute Notice, then the Indemnified Party will have the
right (but not the obligation) to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings and defense, if commenced, will be promptly
and vigorously prosecuted by the Indemnified Party to a final conclusion or
will be settled at the discretion of the Indemnified party (with the
consent of the Indemnifying Party, which consent will not be withheld or
delayed unreasonably). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is contesting,
or, if appropriate and related to the Third Party Claim in question, in
making any counterclaim against the Person asserting the Third Party Claim,
or any cross-complaint against any Person (other than the Indemnifying
Party or any of its Affiliates). Notwithstanding the foregoing provisions
of this Section 9.2(c), if the Indemnifying Party has timely notified the
Indemnified Party that the Indemnifying Party disputes its liability to the
Indemnified Party and if such dispute is resolved in favor of the
Indemnifying Party, pursuant to the arbitration process provided in Section
9.6 below or otherwise, if applicable, by final, nonappealable order of a
court of competent jurisdiction, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's defense
pursuant to this Section 9.2(c) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party will reimburse the Indemnifying Party in full for all
costs and expenses incurred by the Indemnifying Party in connection with
such proceedings. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 9.2(c), and the Indemnifying Party will bear its
own costs and expenses with respect to such participation.
(d) In the event any Indemnified Party shall have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim
being asserted against or sought to be collected from the Indemnified
Party, the Indemnified Party will notify the Indemnifying Party with
reasonable promptness of such claim by the Indemnified Party, specifying
the nature of and specific basis for such claim and the amount or the
estimated amount of such claim (the "Indemnity Notice"). If the
Indemnifying Party disputes such claim (which dispute shall be communicated
to the Indemnified Party in writing within 15 days of receipt of an
Indemnity Notice), the Indemnifying Party and the Indemnified Party agree
to proceed in good faith to attempt to negotiate a resolution of such
dispute for a period of thirty days, and if not resolved through
negotiations, either party may submit the matter to arbitration to
determine whether the Indemnifying Party has such liability in accordance
with the provisions of Section 9.6 below.
<PAGE>
Section 9.3 After-Tax Damages; Refunds. With respect to the indemnification
agreements set forth in this ARTICLE IX, Seller and Purchaser agree that:
(a) the amount of all Damages shall be (i) increased to take account
of any income Tax cost incurred (grossed up for such increase) by the
Indemnified Party arising from the receipt of indemnification payments made
hereunder and (ii) all Damages will be adjusted downward by the income Tax
benefit obtained by the Indemnified Party arising from the incurrence or
payment of any such Damages. Such Tax cost or Tax benefit shall be computed
for any year using the Indemnified Party's actual income Tax liability with
and without (x) the incurrence or payment of any Damages for which
indemnification is provided under this Agreement or (y) the payment of any
indemnification payments made pursuant to this Agreement in such year;
(b) the amount of any tax cost or tax benefit will be promptly paid to
Seller or Purchaser or offset against indemnification payments, as adjusted
by (a) above, if appropriate, then owed to the other party to this
Agreement; and
(c) all Damages indemnifiable under Section 9.1 will be payable by any
party as set forth in the terms of the applicable judgment or settlement,
but in no event later than 30 days after the rendition of a final
non-appealable judgment is obtained or a final settlement has been agreed
to, in writing in relation to the Damages.
Section 9.4 Claims Limitation. Notwithstanding the foregoing provisions of
this ARTICLE IX, SWLIC shall not have any liability for any Damages under
Section 9.1(a) hereof, until and unless the cumulative total of such Damages
exceeds (a) individually as to any Property $100,000 or (b) in the aggregate as
to all Properties $600,000, it being understood that after such Damages exceed
(a) individually as to any Property $100,000 or (b) in the aggregate as to all
Properties $600,000, SWLIC shall be liable to any Purchaser-Related Person for
all of such Damages (e.g., if the aggregate Damages are $600,001, Seller shall
be liable for $600,001) provided, however, that the limitations of this
Section 9.4 shall not apply to any Damages resulting from Seller's intentional,
willful or reckless breaches of warranty in this Agreement or for Accrued
Expenses. Notwithstanding any other provision in this Agreement to the contrary:
(x) any claim against SWLIC for any misrepresentation or breach of warranty by
Seller pursuant to Section 3.1(l), 3.1(o) and any other Title Issues (as
hereinafter defined) must be asserted during the Adjustment Period (as
hereinafter defined) pursuant to Section 9.5 after which date all of such claims
shall be barred; (y) any claim against SWLIC for any misrepresentation or breach
of warranty by Seller pursuant to Sections 3.1(a), 3.1(b), 3.1(c), 3.1(d),
3.1(f), 3.1(g), 3.1(h), 3.1(i), 3.1(j), 3.1(m), 3.2(a) 3.2(b) and 3.2(c) may be
asserted at any time; and (z) any other claim by Purchaser against SWLIC
pursuant to Section 9.1(a) must be asserted prior to December 31, 1997, after
which date all such claims shall be barred. Any claim against Purchaser pursuant
to Section 9.2(b) may be asserted at any time. If more than one
Purchaser-Related Person or more than one Seller-Related Person shall assert a
claim which is based on the same claimed breach, misrepresentation or Title
Issues, the Damages payable in relation to such claim shall be limited to the
maximum amount which would have been payable
<PAGE>
if only one Purchaser-Related Person or one Seller-Related Person, as
applicable, had brought such claim and fees and expenses of only one legal
counsel employed by Purchaser or SWLIC, as applicable, to defend such claim as
against all of such parties (with any parties desiring or seeking separate
representation, to in all such events pay their own attorneys' fees and
expenses). If Purchaser or SWLIC, as applicable, shall fail within the time
periods specified herein to pursue such claim or shall choose not to defend such
claim with counsel of its choice the attorneys fees, costs and expenses which
Purchaser or SWLIC, as applicable, may otherwise be responsible pursuant to the
provisions of this Article IX shall be limited to only one of such parties
attorneys' fees and expenses.
Section 9.5 Title Claim Procedure. Purchaser shall have a period of
forty-five (45) days following the Closing Date (the "Adjustment Period") to
advise Seller and SWLIC in writing (the "Purchaser's Notice") of: (a) any
imperfections of title or other encumbrances which do not otherwise constitute
Permitted Exceptions; (b) the absence of vehicular or pedestrian access to and
from a Property pursuant to frontage on a dedicated street or road or by
enforceable easement; (c) an existing use of a Property not authorized or
permitted under applicable zoning Law; or (d) a violation of Law relating to the
continued ownership, operation, use or occupancy of a Property ((a) through (d)
above being herein collectively referred to as "Title Issues"). The Purchaser's
Notice shall include a statement of the Damages claimed by Purchaser as to any
Title Issues. SWLIC shall have no responsibility for any claimed Damages in
respect of Title Issues under this Section 9.5 not in excess of $50,000.00 in
the aggregate for all Properties and if such Damages exceed in the aggregate
$50,000.00 as to all Properties, Seller shall be liable to Purchaser only for
Damages in excess of such $50,000.00 in the aggregate as to all Properties. If a
Purchaser's Notice claims Damages in excess of $50,000.00, but not exceeding
$250,000.00, for a single Property, SWLIC shall have a period of seven (7) days
following receipt of a Purchaser's Notice to notify Purchaser in writing of its
election to either: (a) dispute the Purchaser's claim of Damages in respect of
Title Issues under this Section 9.5 and/or the amount of Damages as shown on the
Purchaser's Notice, (b) pay the Damages as shown in the Purchaser's Notice
directly to Purchaser in cash, (c) cause a title insurer to provide title
insurance coverage insuring over or around or providing express insurance
against all loss due to such Title Issues, or (d) cure the Title Issues. In the
event SWLIC elects either items (b) or (c) immediately preceding, such cash
payment to Purchaser or title insurance coverage, as applicable, shall be
provided by SWLIC within a period of thirty (30) days following the date of
SWLIC's written responses to the Purchaser's Notice. In the event SWLIC elects
item (d) preceding, such cure shall be completed within a period of forty-five
(45) days following the date of SWLIC's response to the Purchaser's Notice;
provided that so long as SWLIC is diligently pursuing cure, such period shall be
automatically extended for an additional period of up to thirty (30) days in
order for SWLIC to complete the cure of the Title Issues. If SWLIC disputes the
Purchaser's claim pursuant to this Section 9.5(a), SWLIC and Purchaser shall
negotiate in good faith for a period of thirty days and if such claim is not
resolved within such thirty day period the matter shall be submitted for
arbitration pursuant to Section 9.6. In the event the Purchaser's Notice asserts
Damages in excess of $250,000.00 with respect to any single Property, the
Purchaser's Notice may provide for SWLIC to repurchase the partnership interests
of the Property Partnership which is the owner of the Property for which the
Damages are asserted. Subject to SWLIC's
<PAGE>
right to dispute the claim and/or amount of Damages in such Purchaser's Notice
and any submission of the matter to arbitration pursuant to Section 9.6, SWLIC
shall be required to repurchase such partnership interests for a price equal to
the Allocated Price of the applicable Property as reflected on Exhibit "B"
hereto less the then outstanding principal balance of any Mortgage Liens
covering such Property, if any. Purchaser may, in its sole discretion, elect to
accept a cure of any Title Issues in lieu of requiring SWLIC to repurchase such
partnership interests. Any such repurchase shall be consummated within a period
of thirty (30) days following the later to occur of SWLIC's receipt of the
Purchaser's Notice or the date of an Arbitration Determination. Purchaser shall
execute and deliver an Assignment of Partnership Interests in the same form as
attached hereto as Exhibit "A" in respect to the Property Partnership to be so
repurchased and Seller shall contemporaneously therewith deliver to Purchaser
the cash sum equal to the Allocated Price for such Property less the then
outstanding principal balance of any Mortgage Liens covering such Property, if
any. Simultaneously with the execution and delivery of an Assignment of
Partnership Interests, (i) all income and expenses in relation to the Property
owned by the Property Partnership so repurchased shall be prorated in accordance
with the provisions of Section 2.4 of this Agreement and (ii) the Seller shall
take the Property subject to the Mortgage Liens, if any, covering such Property.
If the Property required by Purchaser to be repurchased is the Property commonly
known as Broadmoor Apartments, it shall be a condition to SWLIC's obligation to
repurchase that the Property commonly known as Ashland Towne Square Apartments
also be repurchased, each at the Allocated Price as specified in Exhibit "B"
hereto less the outstanding principal balance of any Mortgage Liens covering
such Properties, if any. Any Purchaser Notice must be delivered to Seller and
SWLIC prior to the expiration of the Adjustment Period. Following the expiration
of the Adjustment Period, Purchaser shall have no right to make any claim
related to any Title Issues except to the extent Seller failed to perform as
required with respect to a Purchaser's Notice which was timely delivered. The
remedies of this Section 9.5 shall control over the indemnification procedures
of Section 9.1(a) above with respect to Title Issues. A failure of SWLIC to
dispute the Purchaser's Notice in the required time period shall be deemed to
constitute a dispute of such Purchaser's Notice. If SWLIC disputes the
Purchaser's Notice as provided in (a) above or is deemed to have disputed the
Purchaser's Notice, Purchaser may elect to obtain express title insurance or
proceed to cure any such claimed Title Issues pending completion of the
arbitration process provided in Section 9.6. If any such disputed Purchaser's
Notice is resolved against SWLIC pursuant to arbitration in accordance with
Section 9.6, SWLIC shall be responsible only for the amount of Damages as
determined pursuant to the arbitration process, notwithstanding any amounts
which may have been paid or incurred by any Purchaser-Related Persons during the
pendency of the arbitration proceeding in relation to such claimed Title Issues.
Section 9.6 Arbitration Process. If a Claim Notice, Indemnity Notice or
Purchaser's Notice is given in accordance with the provisions of this Agreement
and the party receiving the notice disputes the coverage of the claim under the
provisions of Article IX ("Coverage of the Claim") or the amount of the claim
(the "Amount of the Claim"), then at any time on or before the date occurring
thirty (30) days after such claim is disputed, either party may initiate the
arbitration of the Coverage of the Claim or Amount of the Claim by giving notice
to that effect which notice shall specify the name and address of the person
designated to act as an arbitrator
<PAGE>
on its behalf. Within fifteen (15) days after the notified party receives such
notice from the notifying party, the notified party shall give notice to the
notifying party specifying the name and address of the person designated to act
as an arbitrator on its behalf. The two arbitrators so chosen shall meet within
ten (10) days after the second arbitrator is appointed, and if, within ten (10)
days after the second arbitrator is appointed, the two arbitrators do not agree
upon the Coverage of the Claim or the Amount of the Claim, they shall together
appoint a third arbitrator. If, within fifteen (15) days after the appointment
of the second arbitrator, the two arbitrators are unable to agree upon the third
arbitrator or they otherwise fail to make such appointment, the third arbitrator
shall be selected by the parties themselves if they can agree thereon within a
further period of five (5) days. If the parties do not so agree, then either
party upon notice to the other made within thirty (30) days after the
appointment of the second arbitrator, may request such appointment by the
American Arbitration Association (or any organization successor thereto) in
accordance with its rules then prevailing or if the American Arbitration
Association (or such successor organization) shall fail to appoint said third
arbitrator within fifteen (15) days after such request is made, then either
party may apply within five (5) days after such fifteen (15) day period, upon
notice to the other, to the Senior Judge of the Federal District Court of the
Northern District of Texas (or any other court having jurisdiction and
exercising functions similar to those now exercised by said Court) for the
appointment of such third arbitrator.
(a) Each party shall pay the fees and expenses of the original
arbitrator appointed by or for such party, and all other expenses of the
arbitration (not including the attorneys' fees and similar expenses of the
parties which shall be borne separately by each of the parties) shall be
borne by the parties equally.
(b) If a third arbitrator is chosen as provided above, and the Amount
of the Claim is in issue, then such third arbitrator shall select either
the Amount of the Claim determined by the arbitrator appointed by or for
SWLIC or the Amount of the Claim determined by the arbitrator selected by
Purchaser, whichever is closer to the Amount of the Claim determined by the
third arbitrator; the third arbitrator may not select any other amount, and
may not "split the difference" between the determinations of the
arbitrators selected or appointed by or for the parties. The third
arbitrator shall so determine the amount of the claim and render a written
certified report of his determination to both SWLIC and Purchaser within
ten (10) days after appointment of the third arbitrator.
(c) If a third arbitrator is chosen as provided above, and the
Coverage of the Claim is in issue, a majority of the three arbitrators
shall determine the Coverage of the Claim and such majority shall render a
written certified report of their determination to both SWLIC and Purchaser
within ten (10) days after the appointment of the third arbitrator.
(d) Each of the arbitrators selected as herein provided shall have at
least ten (10) years experience in the multifamily real estate business in
the location of the Property as to which a claim has been made (or ten (10)
year retail experience with respect to the Property commonly described as
Northgate). In addition, each of the
<PAGE>
arbitrators shall be an independent party not affiliated in any way with
SWLIC, Seller-Related Persons or Purchaser-Related Persons.
(e) The decision or judgment issued by the arbitrator shall be in
writing and final and conclusive upon the parties. Judgment may be had on
the decision and award of the arbitrator and may be entered in any court
having jurisdiction thereof.
ARTICLE X
POST-CLOSING TAX MATTERS
Section 10.1 Seller Tax Returns. Seller will prepare and file, or cause to
be prepared and filed the Seller Tax Returns. Seller will timely pay or
discharge, or cause to be paid or discharged, any and all Taxes for which the
Company, GSSW-REO or the Property Partnership may be held liable as a result of
Seller Tax Returns, unless such Taxes are being contested in good faith. Seller
shall provide a copy of Seller Tax Returns to Purchaser prior to filing and
Seller agrees to reasonably cooperate with any suggestions or requests of
Purchaser in connection with Seller's Tax Returns. Seller reserves the right to
make any filings reasonably deemed by Seller to be necessary under applicable
Law.
Section 10.2 Cooperation. Purchaser and Seller agree to furnish or cause to
be furnished to each other, upon request, as promptly as practicable, such
information (including, without limitation, access to books and records) and
reasonable assistance relating to the Company, GSSW-REO, and each Property
Partnership as is reasonably necessary for the preparation and filing of any Tax
Return which may be required to be filed by either Purchaser or Seller or for
the preparation for any audit, for the prosecution of any proceeding in respect
of any proposed adjustment and for any amendment to the Sellers Tax Returns for
periods prior to the Closing Date, which amendments Seller is specifically
authorized to file with the applicable taxing authority. Purchaser and Seller
shall cooperate with each other in the conduct of any audit or other proceedings
involving the Company, BGFRTS, L.C. (the general partner of the Company)
GSSW-REO, or any Property Partnership or any entity with which they are
consolidated or combined for any Tax purposes and each shall execute and deliver
such documents as are necessary to carry out the intent of this ARTICLE X.
Section 10.3 Tax Matters. Seller and Purchaser agree that Purchaser can
allocate the Purchase Price among the Properties for tax purposes based on
Purchaser's good faith determination of fair market value. Seller agrees to
cooperate with Purchaser to the extent necessary or desirable for Purchaser to
make any Section 754 Tax election that Purchaser may so elect.
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. Any notice or other communication given pursuant to
this Agreement must be in writing and (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c) delivered by
overnight express or (d) sent by registered or certified mail, postage prepaid,
as follows:
i) If to Purchaser:
Steve Galiotos
Blackstone Real Estate Advisors II L.P.
345 Park Avenue, 31st Floor
New York, New York 10154
Facsimile number: (212) 754-8730
with a copy to:
John Lines
Jeffrey L. Goldberg
Insignia Financial Group, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29601
Facsimile number: (804) 239-1096
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Glenn D. Kesselhaut, Esq.
Facsimile number: (212) 455-2502
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
399 Park Avenue
New York, New York 10022
Attention: Robert Koen, Esq.
Facsimile number: (212) 872-1002
<PAGE>
ii) If to Seller:
Daniel B. Gail
Executive Vice President
Southwestern Life Insurance Company
500 North Akard
12th Floor
Dallas, Texas 75201
Facsimile number: 214-954-7345
with a copy to:
Arthur Evans
Knightsbridge Investment Management
745 5th Avenue
Suite 500
New York, New York 10151
Facsimile number: 212-758-5442
and
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Edward A. Peterson, Esq.
Facsimile number: 214-745-5390
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 11.1 will (A) if
delivered personally or by overnight express, be deemed given upon
delivery; (B) if delivered by telefacsimile or similar facsimile
transmission, be deemed given when electronically confirmed; and (C) if
sent by registered or certified mail, be deemed given when received. Any
party from time to time may change its address for the purpose of notices
to that party by giving a similar notice specifying a new address, but no
such notice will be deemed to have been given until it is actually received
by the party sought to be charged with the contents thereof.
Section 11.2 Entire Agreement. Except for documents executed by Seller and
Purchaser pursuant hereto, this Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
<PAGE>
Section 11.3 Expenses. Except as otherwise expressly provided in this
Agreement, each of Seller and Purchaser will pay its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby.
Section 11.4 Public Announcement. At all times at or before the Closing,
Seller and Purchaser will each consult with the other before issuing or making
any reports, statements, or releases to the public with respect to this
Agreement or the transactions contemplated hereby and will use good faith
efforts to agree on the text of a joint public report, statement, or release or
will use good faith efforts to obtain the other party's approval of the text of
any public report, statement, release to be made solely on behalf of a party. If
Seller and Purchaser are unable to agree on or approve any such public report,
statement, or release and such report, statement, or release is required by Law
or appropriate to discharge such party's, disclosure obligations, then such
party may make or issue the legally required or appropriate report, statement,
or release. Any such report, statement, or release approved or permitted to be
made pursuant to this Section 11.4 may be disclosed or otherwise provided by
Seller or Purchaser to any person or entity, including without limitation to any
employee or customer of either party hereto and to any governmental or
regulatory authority.
Section 11.5 Further Assurance. Seller and Purchaser agree that, from time
to time after the Closing, upon the reasonable request of the other, they will
cooperate and will cause their respective Affiliates to cooperate with each
other to effect the orderly transition of the business, operations, and affairs
of the Property Partnerships. Without limiting the generality of the foregoing,
(a) Seller will provide, and will cause its respective Affiliates to provide,
representatives of Purchaser reasonable access to all books and records of
Seller and its Affiliates reasonably requested by Purchaser in the preparation
of any post-Closing financial statements, reports, Tax Returns, or Tax filings
of the Property Partnerships; (b) Purchaser will provide, representatives of
Seller reasonable access to all pre-Closing books and records of the Property
Partnerships reasonably requested by Seller in the preparation of any
post-Closing financial statements, reports, Tax Returns, or Tax filings of
Seller; and (c) each party hereto will execute such documents and instruments as
the other party hereto may reasonably request containing terms and conditions
mutually satisfactory to each party hereto to further effectuate the terms
hereof.
Section 11.6 Waiver. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof. Such waiver
must be in writing and must be executed by an executive officer of such party. A
waiver on one occasion will not be deemed to be a waiver of the same or any
other breach or nonfulfillment on a future occasion. All remedies, either under
this Agreement, or by Law or otherwise afforded, will be cumulative and not
alternative.
Section 11.7 Amendment. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of Seller and Purchaser.
<PAGE>
Section 11.8 Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
Section 11.9 No Third Party Beneficiary. Except as otherwise set forth
herein, the terms and provisions of this Agreement are intended solely for the
benefit of Seller, Purchaser, and their respective successors and permitted
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other person or entity.
Section 11.10 Governing Law. This Agreement will be governed by and
construed and enforced in accordance with the Laws of the State of Texas
(without regard to the principles of conflicts of Law) applicable to a Contract
executed and performable in such state.
Section 11.11 Binding Effect. This Agreement is binding upon and will inure
to the benefit of the parties and their respective successors and permitted
assigns.
Section 11.12 Limited Assignment. Neither this Agreement nor any right or
obligation hereunder or part hereof may be assigned by any party hereto without
the prior written consent of the other party hereto (and any attempt to do so
will be void), except as otherwise specifically provided herein. Notwithstanding
the foregoing (i) Purchaser shall have the right to assign this Agreement at or
prior to the Closing Date to an Affiliate of Purchaser; provided, however, that
the Purchaser shall remain liable for all obligations of the Purchaser under
this Agreement, and (ii) Purchaser (or its permitted assignee) may grant a
collateral assignment of its interests in this Agreement to any lender of
Purchaser (or its permitted assignee).
Section 11.13 Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future Law, and if the
rights or obligations under this Agreement of Seller and the Purchaser will not
be materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom; and (d) in lieu of such illegal, invalid, or
unenforceable provision, there shall be added automatically as part of this
Agreement a legal, valid, and enforceable provision as similar in terms to such
illegal, invalid, or unenforceable provision as may then be legal, valid and
enforceable under applicable Law.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
this 31st day of December 1996, by the duly authorized representatives of Seller
and Purchaser.
SELLER:
GSSW-REO OWNERSHIP CORPORATION
By: /s/ Stavros Galiotos
- - ------------------------------------------------------------------------
Name: Stavros Galiotos
Title:
GSSW LIMITED PARTNERSHIP,
a Texas limited partnership
By: BGFRTS, L.C.,
a Texas limited liability company,
its general partner
By: /s/ Stavros Galiotos
-------------------------
Name: Stavros Galiotos
Title:
<PAGE>
PURCHASER:
SOUTHWEST ASSOCIATES L.P.,
a Delaware limited partnership
By: BRE/SOUTHWEST PARTNERS I L.P.,
a Delaware limited partnership,
general partner
By: BRE/SOUTHWEST PARTNERS I, L.L.C.,
a Delaware limited liability company,
sole general partner
By: /s/ Stavros Galiotos
------------------------
Name: Stavros Galiotos
Title:
By: NPI-AP MANAGEMENT, L.P.,
a Delaware limited partnership,
general partner
By: NPI Property Management Corporation,
sole general partner
By: /s/ Jeffrey L. Goldberg
----------------------------
Name: Jeffrey L. Goldberg
Title:
<PAGE>
SWLIC has executed this Agreement in the space provided below solely to
evidence its indemnification obligations pursuant to ARTICLE IX.
SOUTHWESTERN LIFE INSURANCE
COMPANY
By: /s/ Stavros Galiotos
--------------------------
Name (print):
Title:
AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTHWEST ASSOCIATES, L.P.
Dated as of the 31st day of December, 1996
THE INTERESTS ISSUED UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR
QUALIFIED UNDER THE APPLI- CABLE STATE SECURITIES LAWS, IN RELIANCE UPON
EXEMPTIONS FROM REGISTRATION AND QUALIFICATION PROVIDED IN THE SECURITIES ACT
AND THE APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
QUALIFICATION OR REGISTRATION UNDER THE APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED. IN ADDITION, THE INTERESTS ISSUED UNDER THIS
AGREEMENT MAY BE SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE RESTRIC- TIONS
ON TRANSFER SET FORTH HEREIN.
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTHWEST ASSOCIATES, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is made and entered
into as of the 31st day of December, 1996, by and between NPI-AP Management,
L.P., a Delaware limited partnership, as a general partner and a limited partner
(in its capacity as a general partner the "Managing General Partner" and in its
capacity as a limited partner, the "Insignia Limited Partner", or generally the
"Insignia Partner") and BRE/Southwest Partners I L.P., a Delaware limited
partnership, as a general partner (the "Blackstone General Partner", together
with the Managing General Partner, the "General Partners") and Blackstone Real
Estate Partners II L.P., a Delaware limited partnership, Blackstone Real Estate
Partners II TE.1 L.P., a Delaware limited partnership, Blackstone Real Estate
Partners II TE.2 L.P., a Delaware limited partnership, and Blackstone Real
Estate Holdings II L.P., a Delaware limited partnership, as limited partners
(the "Blackstone Limited Partners", together with the Insignia Limited Partner,
the "Limited Partners" and each a "Limited Partner") (the Blackstone Limited
Partners and the Blackstone General Partner are collectively referred to as the
"Blackstone Partners" or "Blackstone") with reference to the following:
RECITALS
A. The Insignia Partner and the Blackstone Partners desire to form a
limited partnership pursuant to the provisions of the Revised Uniform Limited
Partnership Act of the State of Delaware, Delaware Code, Title 6, Sections
17-101, et seq., as amended from time to time, and to constitute themselves as
Southwest Associates, L.P., a Delaware limited partnership (the "Partnership"),
on the terms and conditions set forth below.
B. Each of the Insignia Partner and the Blackstone Partners desires to make
its respective capital contribution to the Partnership as described in this
Agreement and to be admitted as a Partner of the Partnership.
C. In order to effect the foregoing, the parties hereto desire to enter
into this Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein (the receipt and sufficiency of which hereby are acknowledged
by each party hereto), the parties hereto, intending to be legally bound, do
hereby agree as follows:
<PAGE>
ARTICLE 1
GENERAL PROVISIONS
1.1 Formation. The General Partners and the Limited Partners hereby form
the Partnership as a Delaware limited partnership pursuant to the terms of this
Agreement and the Act. This Agreement shall constitute the agreement of limited
partnership among the Partners. All capitalized terms used and not otherwise
defined herein shall have the meanings set forth in Section 1.8 hereof. The
Partners further agree to take such other actions as may from time to time be
necessary or appropriate under the laws of the State of Delaware with respect to
the formation, operation and continued good standing of the Partnership as a
Delaware limited partnership.
1.2 Name of Partnership. The name of the Partnership shall be "Southwest
Associates, L.P."
1.3 Compliance.
1.3.1 Certificate of Limited Partnership. The General Partners have
executed the Certificate of Limited Partnership for the Partnership, and
filed the same with the Office of the Secretary of State of Delaware, which
certificate due to clerical error was filed on January 13, 1997. Due to the
delay in the filing of the Certificate of Limited Partnership for the
Partnership, the Partners hereby confirm and ratify all of the actions,
covenants, obligations, duties, liabilities, indemnities, waivers and
guarantees made and given by the Partnership as of December 31, 1996 up to
and including the date of the filing of the Certificate of Limited
Partnership for the Partnership. The General Partners shall cause the
Partnership to take any other steps that are necessary for the Partnership
to conduct the Partnership's business in the states in which it does
business. The Certificate shall be amended whenever, and within the time
periods, required by the Act.
1.3.2 Principal Office, Resident Agent and Registered Office. The
principal office of the Partnership shall be located at c/o Blackstone Real
Estate Advisors L.P., 345 Park Avenue, 31st Floor, New York, New York 10154
or at such other place or places as may from time to time be Approved by
the General Partners; provided, however, that the Partnership shall at all
times maintain a registered agent and an office in the State of Delaware
and in such other states as required by law. The name and address of the
registered agent for service of process on the Partnership in the State of
Delaware is CT Corporation Systems, 1201 Orange Street, Wilmington,
Delaware 19801. The address of the registered office of the Partnership in
the State of Delaware is CT Corporation Systems, 1201 Orange Street,
Wilmington, Delaware 19801. Such principal office, registered agent or
registered office may be changed by the Blackstone General Partner from
time to time upon the Approval of the Managing General Partner, so long as
in accordance with the Act.
1.4 Purposes of Partnership. The purposes of the Partnership shall be:
1.4.1 (i) To acquire the limited partnership interests in the REO
Partnerships listed on Exhibit D to this Agreement (the "REO Partnerships"
and the "REO Partnership
<PAGE>
Interests") for investment purposes, (ii) to enter into the amended and
restated agreements of limited partnership for each REO Partnership as a
limited partner (together with any ancillary documents to be executed by
the Partnership in connection therewith the "REO Partnership Agreements"),
(iii) to own, hold, finance, refinance, sell, exchange, transfer or
otherwise dispose of and otherwise exercise all rights, powers, privileges
and other incidents of ownership or possession with respect to the REO
Partnership Interests, and (iv) to enter into that certain contract to
acquire the REO Partnership Interests dated as of December 31, 1996 by and
among the Partnership (with respect to the REO Partnership limited
partnership interests), and GSSW-REO Ownership Corporation and GSSW Limited
Partnership (together with any ancillary documents to be executed by the
Partnership in connection with the Partnership's acquisition of the REO
Partnership Interests) (collectively, the "Purchase Agreement"). The
Purchase Agreement is hereby Approved by the General Partners (the "Initial
Approved Contract" together with any other agreements or other contracts
Approved by the General Partners from time to time, the "Approved
Contracts");
1.4.2 The Partnership may carry on and engage in other lawful general
business activities, in furtherance of the purposes listed in Section
1.4.1, including, borrowing money from any source, whether secured or
unsecured, acquiring additional real and personal property in connection
with its acquisition or ownership of the REO Partnership Interests,
contracting for necessary or desirable services of professionals and
others, owning the REO Partnership Interests and, consistent with the
Partnership's investment purposes with respect to the REO Partnership
Interests, the Partnership may sell, exchange or otherwise dispose of all
or any portion of the REO Partnership Interests.
1.5 Percentage Interests.
1.5.1 The respective Percentage Interests in the Partnership of the
Partners as of the Agreement Date are set forth on Exhibit A. All
references in this Agreement to any Exhibit are references to such Exhibit
as amended from time to time pursuant to this Agreement.
1.5.2 Unless the context otherwise clearly indicates, the terms
"interest" or "interests" in the Partnership shall include both General
Partner interests and Limited Partner interests. A Partner's "interest" in
the Partnership shall mean and include its share of the capital of the
Partnership, its share of the Profits and Losses and other tax items of the
Partnership, its share of the distributions of the Partnership, its Capital
Account, and its other rights and obligations, all as determined under this
Agreement.
1.6 Other Qualifications. At the expense of the Partnership, the General
Partners shall cause the Partnership to be qualified to do business in each
jurisdiction in which such qualification becomes necessary, on or before the
date on which such qualification becomes necessary, in each case in accordance
with the requirements of Section 1.3.2.
1.7 Term of Partnership. The term of the Partnership shall commence as of
the date of filing the Certificate and shall continue until the Partnership
shall be dissolved, liquidated and terminated pursuant to the provisions of
Article 8.
<PAGE>
1.8 Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
1.8.1 "Act" shall mean the Delaware Revised Uniform Limited
Partnership Act, Delaware Code, Title 6, Sections 17-101, et seq., as
amended from time to time.
1.8.2 "Adjusted Capital Account Deficit" shall mean, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account
as of the end of the relevant tax year, after giving effect to the
following adjustments:
1.8.2.1 Credit to such Capital Account any amounts which such
Partner is obligated to restore or is deemed to be obligated to
restore to the Partnership pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
1.8.2.2 Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
1.8.3 "Affiliate" shall mean (a) with respect to Insignia: (i) any
Entity Controlling or under common Control with Insignia and (ii) any
Entity which is Controlled (directly or indirectly) by one or more of
(A) Insignia, (B) Metropolitan Asset Enhancement, L.P. or (C) any of their
respective Affiliates, and (b) with respect to Blackstone: (i) any Entity
Controlling or under common Control with Blackstone, including the partners
of Blackstone, (ii) any Entity which is Controlled (directly or indirectly)
by one or more of (A) Blackstone, (B) Blackstone Real Estate Advisors II
L.P., The Blackstone Group L.P. and/or any successor to their duties in
connection with the management of Blackstone, or (C) any of
their respective Affiliates. For the purposes of this Agreement, the term
"Control," or any derivative thereof (including "Controlled by" or
"Controlling"), when used with respect to any specified Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through
ownership of voting securities or partnership or other ownership interests,
or by contract; provided, however, that, without limiting the generality of
the foregoing, (a) any Person which owns, directly or indirectly,
securities representing more than 50% of the value or ordinary voting power
of a corporation or more than 50% of the partnership, membership or other
ownership interests (based upon value or vote) of any other Person is
deemed to Control such corporation or other Person, (b) a general partner
shall always be deemed to Control any partnership of which it is a general
partner, and (c) a member-manager of a limited liability company shall
always be deemed to Control any limited liability company of which it is a
member-manager.
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1.8.4 "Agreement" shall mean and refer to this Agreement of Limited
Partnership and all Exhibits referred to herein and attached hereto, each
of which is hereby made a part hereof, as amended and in effect from time
to time.
1.8.5 "Agreement Date" shall mean the date first written above as of
which this Agreement is effective.
1.8.6 "Approval" (and any variation thereof) of the General Partners,
the Blackstone General Partner or the Managing General Partner shall mean
the prior written consent or approval (or deemed approval) of such Partner
or Partners. Approval of Major Decisions (other than a Major Decision
described in Sections 5.5.5.1, 5.5.5.2, 5.5.5.4 or 5.5.5.12) after January
1, 1998 may be unreasonably withheld. All other decisions requiring the
Approval of a Partner shall not be withheld or delayed unreasonably.. Such
Approval shall be valid for a Partner who is not a natural person only if
given by at least one Authorized Representative of such Partner. If the
Approval of a Partner to any action is required under this Agreement and
such Partner shall not have given notice of disapproval or Approval of such
action to the Partner required to be given such notice within ten (10)
Business Days after receipt of the notice requesting that such Approval be
given (or such earlier or later date as may be established pursuant to this
Agreement for the giving or withholding of such Approval), such Partner
shall be deemed to have given such Approval. Any act taken or proposed to
be taken by the Blackstone General Partner shall be deemed approved by that
Partner. Notwithstanding the foregoing, or anything in this Agreement, with
respect to any decision which is subject to the dispute resolution set
forth in Section 5.9, the Managing General Partner shall be deemed to have
approved such decision unless the Managing General Partner timely exercises
its rights under Section 5.9.
1.8.7 "Approved Contracts" is defined in Section 1.4.1
1.8.8 "Authorized Representatives" is defined in Section 1.10.
1.8.9 "Bankrupt" shall mean, with respect to any Partner, if:
1.8.9.1 Such Partner, or a Person that Controls such Partner (the
"Controlling Person"), shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee,
administrator, liquidator or the like of itself or of all or of a
substantial portion of its assets, (ii) admit in writing its inability, or
be generally unable or deemed unable under any applicable law, to pay its
debts as such debts become due, (iii) convene a meeting of creditors for
the purpose of consummating an out-of-court arrangement, or entering into a
composition, extension or similar arrangement, with creditors in respect of
all or a substantial portion of its debts, (iv) make a general assignment
for the benefit of its creditors, (v) place itself or allow itself to be
placed, voluntarily or involuntarily, under the protection of the law of
any jurisdiction relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, or (vi) take any action
for the purpose of effecting any of the foregoing; or
1.8.9.2 A proceeding or case shall be commenced in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution,
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winding-up, or composition or readjustment of debts, of such Partner
or a Controlling Person with respect thereto, (ii) the appointment of
a trustee, receiver, custodian, administrator, liquidator or the like
of such Partner or of a Controlling Person with respect thereto or of
all or a substantial portion of such Partner's or such Controlling
Person's assets, or (iii) similar relief in respect of such Partner or
such Controlling Person under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment
of debts, in each case, without the Approval of the General Partners,
and such proceeding or case shall continue undismissed for a period of
ninety (90) days, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed
and in effect for a period of sixty (60) days, or an order for relief
or other legal instrument of similar effect against such Partner or
such Controlling Person shall be entered in an involuntary case under
such law and shall continue for a period of sixty (60) days.
1.8.10 "Bankruptcy" shall mean any condition described in the
definition of "Bankrupt" which renders a Partner a Bankrupt.
1.8.11 "Blackstone" is defined in the Heading to this Agreement.
1.8.12 "Blackstone Limited Partners" is defined in the Heading to
this Agreement.
1.8.13 "Blackstone General Partner" means BRE/Southwest Partners
I L.P., a Delaware limited partnership.
1.8.14 "Business Day" shall mean any day on which commercial
banks are authorized to do business and are not required by law or
executive order to close in New York, New York.
1.8.15 "Capital Account" shall mean, with respect to any Partner,
the Capital Account maintained for such Partner in accordance with the
provisions of Section 3.1.
1.8.16 "Capital Contribution" or "Capital Contributions" shall
mean the amount of cash and the net fair market value of any property
contributed to the capital of the Partnership by the Partners pursuant
to this Agreement.
1.8.17 "Capital Receipts" shall mean (i) the sum of (a) the
proceeds received by the Partnership from the sale, exchange or any
other disposition of all or any portion of the Properties or any other
asset of the Partnership reduced by (ii) all expenditures made by the
Partnership that are required in connection with such sale, exchange
or other disposition plus (b) amounts set aside as reserves therefrom
for Shortfall Disbursements. For purposes of this Agreement, Capital
Receipts, shall, to the extent necessary, be determined at the REO
Partnership level on a look through basis.
1.8.18 "Certificate" shall mean the Certificate of Limited
Partnership of the Partnership required to be filed with the Secretary
of State of the State of Delaware in accordance with the Act, as
amended and in effect from time to time.
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1.8.19 "Code" shall mean the Internal Revenue Code of 1986, as
amended and in effect from time to time (or any corresponding
provision of succeeding law).
1.8.20 "Control" or "Controlled by" or "Controlling" is defined
in the definition of "Affiliate."
1.8.21 "Controlling Person" is defined in the definition of the
term "Bankrupt."
1.8.22 "Deadlock" is defined in Section 5.9.
1.8.23 "Deadlock Election" is defined in Section 5.9(a)(i).
1.8.24 "Deadlock Notice" is defined in Section 5.9.
1.8.25 "Defaulting Partner" shall have the meaning set forth in
Section 2.2.2.
1.8.26 "Determination Date" is defined in Section 5.8.
1.8.27 "Due Date" is defined in Section 2.2.1.
1.8.28 "Due Diligence Materials" shall mean any documents that
have been made available to the Partners in connection with acquiring
the REO Partnerships and the Properties, such as lease abstracts,
partnership agreements and related schedules and exhibits, contracts
(including service contracts and brokerage agreements), title reports,
engineering and geological studies and reports, environmental
investigations and reports, cost analyses, feasibility studies,
leases, financial projections and other such materials relating to the
REO Partnerships and the Properties and any proposed investment by the
Partnership therein.
1.8.29 "Emergency" shall mean an event which reasonably requires
immediate action involving the expenditure of funds or other action in
order to avert or mitigate significant damage to Persons or property
in connection with the Partnership, the Properties or any other asset
of the Partnership.
1.8.30 "Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture,
trust, business trust, joint-stock company, cooperative, association
or other firm or any governmental or political subdivision or agency,
department or instrumentality thereof.
1.8.31 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, and any successor statute.
1.8.32 "Family Member" with respect to an individual shall mean
such individual's present or former spouse, brothers and sisters
(whether by whole or half blood),
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lineal ascendants or descendants or their respective spouses, or a
trustee or custodian for the benefit of any of them.
1.8.33 "Force Majeure" shall mean any act of God (including
weather disturbance, earthquake, fire, mechanical failure of
equipment, disease and the like), labor strike or work stoppage or
slowdown, material shortages, sabotage, war, riot, moratorium,
governmental action or inaction, or any other act of any third party
that reasonably prevents an action from being taken through no fault
of the party who is required to take such action.
1.8.34 "Funding Notice" is defined in Section 2.1.2.
1.8.35 "GAV Notice" is defined in Section 5.9(iii).
1.8.36 "General Partners" shall mean the Blackstone General
Partner and the Managing General Partner.
1.8.37 "Gross Asset Value" shall mean, with respect to any asset,
the adjusted basis of the asset for federal income tax purposes,
adjusted as provided in Section 3.8. 1.8.38 "Including" or "including"
shall mean "including, without limitation."
1.8.39 "Income Tax Regulations" or "Regulations" shall mean the
final or temporary regulations promulgated from time to time under the
Code or, if no final or temporary regulations with respect to a tax
issue then are in effect, proposed regulations then in effects, and
administrative and judicial interpretations thereof.
1.8.40 "Initial Approved Contracts" is defined Section 1.4.1.
1.8.41 "Insignia" is defined in the Heading to this Agreement.
1.8.42 "Insignia Limited Partner" is defined in the Heading to
this Agreement.
1.8.43 "Liabilities" is defined in Section 5.5.3.
1.8.44 "Limited Partner" shall mean NPI-AP Management, L.P., a
Delaware limited partnership, in its capacity as a limited partner and
Blackstone Real Estate Partners II L.P., a Delaware limited
partnership, Blackstone Real Estate Partners II TE.1 L.P., a Delaware
limited partnership, Blackstone Real Estate Partners II TE.2 L.P., a
Delaware limited partnership, and Blackstone Real Estate Holdings II
L.P., a Delaware limited partnership and/or any successor to any
portion of such interests in the Partnership that is admitted to the
Partnership as a Limited Partner hereunder, and any other Person
admitted as a Limited Partner hereunder, for so long as such Person is
a Limited Partner under the terms of this Agreement.
1.8.45 "Liquidator" is defined in Section 8.3.
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1.8.46 "Major Decisions" is defined in Section 5.1.5.
1.8.47 "Management Agreements" shall mean the property management
agreements between each REO Partnership and the Property Manager for
such REO Partnership.
1.8.48 "Managing General Partner" shall mean NPI-AP Management,
L.P., a Delaware limited partnership.
1.8.49 "Net Available Cash," with respect to any period, shall
mean (i) the sum of all cash receipts of the Partnership during such
period from all sources (including Capital Contributions, Capital
Receipts, Net Mortgage Proceeds, cash on hand at the beginning of such
period to the extent not held in reserves, and any funds released
during such period from cash reserves previously established), minus
(ii) Operating Costs for such period. Net Available Cash shall, to the
extent necessary, be determined at the REO Partnership level on a look
through basis.
1.8.50 "Net Mortgage Proceeds" shall mean (i) the sum of (a) the
proceeds of any loan made to the Partnership or the proceeds from
refinancing any such loan, as applicable, plus (b) any amount released
from cash escrow accounts established under any loan to the
Partnership, reduced by (ii) the sum of (a) any amounts required to
fund the Partnership's capital expenditures that are otherwise
permitted to be withheld from such amounts for such purpose under this
Agreement, (b) any and all expenses incurred by the Partnership in
connection with such loan or refinancing, (c) amounts used as
permitted under this Agreement to repay the loan being refinanced and
any other indebtedness of the Partnership, plus (d) amounts thereof
retained as reserves under this Agreement. For purposes of this
Agreement, Net Mortgage Proceeds, shall, to the extent necessary, be
determined at the REO Partnership level on a look through basis.
1.8.51 "Non-Defaulting Partner" is defined in Section 2.2.2.
1.8.52 "Non-Discretionary Items" shall mean expenditures payable
by the Partnership for taxes, utilities, insurance, debt service and
expenses or other amounts required to be paid by the Partnership under
contracts or agreements of the Partnership.
1.8.53 "Nonrecourse Deductions" is defined in Section 3.4.6.
1.8.54 "Nonrecourse Liability" is defined in Section 3.4.6.
1.8.55 "Operating Costs" shall mean the sum of (i) all cash
expenditures of the Partnership made during a period for current costs
and expenses (except to the extent constituting a reduction in
computing Net Mortgage Proceeds or Capital Receipts for such period),
including the closing costs associated with the Partnership's
acquisition of the Properties, due diligence expenditures, payments of
interest and principal or other monetary obligations due under any
loan made to the Partnership; accounting, legal and auditing fees;
taxes payable by the Partnership; public or private utility charges;
sales, use, payroll taxes and withholding taxes related thereto; and
all other entitlement,
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infrastructure, subdivision, surveying, advertising, management,
leasing, and rezoning costs, government approval, and other operating
costs, expenses and capital expenditures (including fees of land use
consultants, engineers, architects, municipal development fees, bond
costs and the like) actually paid with respect to the Properties or
the Partnership's business generally or reimbursed to Partners, plus
(ii) such reserves established from time to time during such period
(except to the extent constituting a reduction in computing Net
Mortgage Proceeds or Capital Receipts for such period). For purposes
of this Agreement, Operating Costs, shall, to the extent necessary, be
determined at the REO Partnership level on a look through basis.
1.8.56 "Partner Assignee" is defined in Section 7.4.
1.8.57 "Partner Group" is defined in Section 5.9(ii).
1.8.58 "Partner Nonrecourse Debt" is defined in Section 3.5.6.4
hereof.
1.8.59 "Partner Nonrecourse Debt Minimum Gain" is defined in
Section 3.5.6.3 hereof.
1.8.60 "Partner Nonrecourse Deductions" is defined in Section
3.5.6.5 hereof.
1.8.61 "Partners" shall mean, collectively, the General Partners
and the Limited Partners, and any of their successors in their
respective capacities as Partners admitted to the Partnership as
Partners hereunder, and any other Person admitted as a Partner under
this Agreement, for so long as any such Person is a Partner under the
terms of this Agreement, and a "Partner" shall mean any one of the
Partners.
1.8.62 "Partnership" shall mean the applicable limited
partnership described on Schedule A hereto and operated pursuant to
this Agreement.
1.8.63 "Partnership Accounting Year" shall mean and refer to the
accounting year of the Partnership ending on December 31 of each
calendar year or such shorter fiscal period during such year for which
a relevant determination is being made under this Agreement.
1.8.64 "Partnership Minimum Gain" is defined in Section 3.4.6.6
hereof.
1.8.65 "Percentage Interest" of a Partner as of any relevant time
shall mean the applicable Percentage Interest set forth on Exhibit A
for such Partner. Such Percentage Interest shall be adjusted as
provided in Section 2.2.2.1 if a Partner becomes a Defaulting Partner
under Section 2.2.2.
1.8.66 "Person" shall mean any individual or Entity.
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1.8.67 "Profit" or "Loss" shall mean, for each Partnership
Accounting Year, an amount equal to the Partnership's net taxable
income or loss for such Accounting Year, determined in accordance with
Code Section 703(a) (for this purpose, all items of income, gain, loss
or deduction required to be stated separately pursuant to Code Section
703(a)(1) shall be included in computing such taxable income or loss),
with the following adjustments:
1.8.67.1 Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Profit or Loss shall be added to such taxable income or loss;
1.8.67.2 In the event the agreed fair market value of any
Partnership asset is adjusted pursuant to Regulations Section
1.704-l(b)(2)(iv)(f) or other pertinent sections of such Regulations,
the amount of such adjustment shall be taken into account for purposes
of computing Profit or Loss; and in lieu of the depreciation,
amortization and other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken into
account depreciation, amortization or other cost recovery computed
with reference to the Gross Asset Value of Partnership property
Approved by the General Partners (if different from its adjusted tax
basis) pursuant to Regulations Section 1.704-l(b)(2)(iv)(g) for such
Partnership Accounting Year; and
1.8.67.3 Notwithstanding any other provisions, any items which
are specially allocated pursuant to Sections 3.3 and 3.4 shall not be
taken into account in computing Profit or Loss.
1.8.68 "Properties" shall mean the properties and assets held by
each of the REO Partnerships.
1.8.69 "Property Managers" shall mean the property managers for
the Properties.
1.8.70 "Purchase Agreement" is defined in Section 1.4.1.
1.8.71 "Regulations" is defined in the definition of "Income Tax
Regulations."
1.8.72 "REIT" shall mean a real estate investment trust or a
partnership or other joint venture with a real estate investment trust
as a partner (directly or indirectly).
1.8.73 "REO Partnerships" is defined in Section 1.4.1.
1.8.74 "REO Partnership Agreements" is defined in Section 1.4.1.
1.8.75 "REO Partnership Interests" is defined in Section 1.4.1.
1.8.76 "Required Additional Contributions" is defined in Section
2.1.1.
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1.8.77 "Revalued Property" is defined in Section 3.4.3.2.
1.8.78 "Securities Act" is defined on the cover page of this
Agreement.
1.8.79 "Shortfall Disbursement" is defined in Section 2.1.1.
1.8.80 "Tax Matters Partner" is defined in Section 5.4.
1.8.81 "Tax Termination" is defined in Section 7.5.1.3.
1.8.82 "Transfer" shall mean (i) the issuance, transfer, sale,
gift, grant, conveyance, assignment, encumbrance, hypothecation or
redemption, directly or indirectly, of any equity ownership interest
(whether stock, membership interest, partnership interest or
otherwise) in the Partnership or in any Person holding a direct (or
indirect through tiered Entities) interest in the Partnership, or the
merger or consolidation of any such Person into or with another
Person, as the case may be; and (ii) the execution and delivery by the
Partnership or any Person holding an equity ownership (directly or
indirectly through tiered Entities) interest in the Partnership of a
contract of sale, option or other agreement providing for any of the
foregoing; provided, however, that the interests of a Partner in the
Partnership may be pledged to lenders as security for a loan or loans
(and such pledge shall not be considered a Transfer), provided
further, that in the event any such lender forecloses on (or otherwise
acquires) the pledged interest, such interest shall be deemed a
limited partner interest with no approvals or consent rights.
1.9 Authorized Acts. In furtherance of its purposes, but subject to all the
other provisions of this Agreement including required Approvals of the General
Partners set forth in this Agreement (including under Article 5), the
Partnership (and the Blackstone General Partner on behalf of the Partnership) is
hereby authorized:
1.9.1 To pursue any rights of the Partnership with respect to the REO
Partnerships pursuant to any agreement to which it is a party, and to own
the REO Partnership Interests or any other asset acquired by the
Partnership pursuant to the provisions of this Agreement, including taking
the actions described in Section 1.4;
1.9.2 To own the REO Partnership Interests for investment purposes and
to finance, sell, convey, assign, transfer or mortgage the REO Partnership
Interests, any other asset of the Partnership, or any of them, necessary,
convenient or incidental to the accomplishment of the purposes of the
Partnership;
1.9.3 To operate, maintain, improve, develop and lease any assets
acquired by the Partnership;
1.9.4 To take any and all actions necessary, convenient or appropriate
as a limited partner of the REO Partnerships and exercise all rights or
powers relating thereto and execute appropriate documents on behalf of the
Partnership in connection therewith;
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1.9.5 To borrow money on behalf of itself (whether secured or
unsecured) and issue evidences of indebtedness in furtherance of any or all
of the purposes of the Partnership, and to secure the same by mortgage,
deed of trust, pledge or other lien on any assets of the Partnership;
1.9.6 To borrow money on the general credit of the Partnership for use
in the Partnership business;
1.9.7 To enter into, perform and carry out contracts of any kind,
including contracts with Affiliates of any of the Partners, necessary to,
in connection with or incidental to the accomplishment of the purposes of
the Partnership;
1.9.8 To issue Funding Notices calling for additional Capital
Contributions in accordance with the provisions of this Agreement;
1.9.9 To enter into any kind of lawful activity and to perform and
carry out contracts of any kind necessary to or in connection with or
incidental to the accomplishment of the purposes of the Partnership,
including the Approved Contracts.
The Blackstone General Partner hereby is authorized to cause the Partnership to
execute and deliver all documents and instruments reasonably necessary or
appropriate to close any of the foregoing transactions. No Partner shall cause
the Partnership to execute and deliver any conveyance, loan or lease documents
without first obtaining the Approval of the General Partners; provided, however,
that once Approved by the General Partners, the Blackstone General Partner may
execute and deliver any such documents with such material changes thereto as
shall be Approved by the General Partners, and only the Blackstone General
Partner shall execute such documents on behalf of the Partnership which
execution by the Blackstone General Partner shall be binding on the Partnership.
Third parties shall be entitled to rely on the authority of the Blackstone
General Partner to execute and deliver any document on behalf of the Partnership
without the execution thereof by the Managing General Partner being required;
1.9.10 To enter into and to perform the Partnership's obligations
under any agreement to which it becomes a party; and
1.9.11 To enter into and to perform the Partnership's obligations
under: (i) all conveyance documents necessary to acquire the Partnership's
interest in the REO Partnerships, (ii) to undertake all required actions
necessary with respect to the operation of the REO Partnership Interests
(including the obligation to sell, exchange or otherwise dispose of the REO
Partnership Interests for the Partnership's account), all of the foregoing
to be subject to such approvals of the Partnership and the General
Partners, as are set forth herein (all of such documents are referred to as
the "Acquisition Documents"); and (iii) any other agreement to which the
Partnership becomes a party pursuant to this Agreement. Notwithstanding any
provision herein, the Blackstone General Partner may enforce (including
termination where permitted under the Management Agreement) the Management
Agreement
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in its reasonable discretion, without any approval rights given to the
Managing General Partner.
1.10 Authorized Representatives. The "Authorized Representatives" of a
General Partner that is not a natural person shall be those representatives
designated by notice to the Blackstone General Partner by such Partner from time
to time to represent such Partner in connection with the Partnership, unless and
until replaced or removed by notice from such Partner to the Blackstone General
Partner. The written statements and representations of an Authorized
Representative for a Partner that is not a natural Person shall be the only
authorized statements and representations of such Partner with respect to the
matters covered by this Agreement. The initial Authorized Representatives are
(i) Thomas J. Saylak, Gary M. Sumers, and Stavros Galiotos for the Blackstone
General Partner and (ii) John Lines, Jeffrey Goldberg and James Aston for the
Managing General Partner. The written statement or representation of any one
Authorized Representative of such Partner shall be sufficient to bind such
Partner with respect to all matters pertaining to the Partnership. The term
"Approved by" or "Consented to by" or "Consent of" or "satisfactory to" with
respect to a Partner that is not a natural Person means a decision or action
which has been consented to in writing by an Authorized Representative of such
Partner, and with respect to a Partner who is an individual, means a decision or
action which has been consented to in writing by such individual. In order for a
decision or action to be "Approved by the General Partners" (or any variation
thereof), the decision or action must be Approved by at least one Authorized
Representative of the Blackstone General Partner and the Managing General
Partner or otherwise deemed approved in accordance with the provisions of this
Agreement.
ARTICLE 2
CAPITAL CONTRIBUTIONS
AND ADDITION CONTRIBUTIONS
2.1 Capital Contributions.
2.1.1 Initial Capital Contributions. On the date hereof, each Partner
has contributed the amount in cash to the capital of the Partnership) that
is set forth for such Partner on Exhibit A as its Section 2.1.1
Contribution.
2.1.2 Required Additional Contributions. Except as provided in this
Section 2.1.2, no Partner shall be required to make any Capital
Contributions other than those described in Section 2.1.1. Each Partner
shall be required to make additional Capital Contributions to the
Partnership if the Blackstone General Partner or the Managing General
Partner gives notice to all Partners (a "Funding Notice") that meets the
requirements of this Section 2.1.2. The amount of additional Capital
Contributions so required from each Partner shall be an amount equal to
(a) such Partner's Percentage Interest multiplied by (b) the amount of cash
that is reasonably needed ("Shortfall Disbursement") for expenditures
necessary to undertake the actions that are Approved by the General
Partners (or permitted to be taken under this Agreement without such
Approval) with respect to the operation of the
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REO Partnerships or the Partnership and with respect to capital
expenditures and rehabilitation expenditures ("Rehabilitation Costs") that
have not previously been Approved by the General Partners, in each case as
set forth in such Funding Notice; provided, however, that the Blackstone
General Partner shall be the only Partner entitle to issue a Funding Notice
for Rehabilitation Costs and neither the Blackstone General Partner nor the
Managing General Partner shall be required to issue a Funding Notice under
any circumstances, and provided, further, that with respect to each REO
Partnership, no Partner shall be required to make any additional Capital
Contributions pursuant to this Section 2.1.2 in an aggregate amount for all
periods greater than (i) its Percentage Interest multiplied by
(ii) $1,000,000, and provided, further, that in the aggregate among all the
REO Partnerships, no Partner shall be required to make any additional
Capital Contributions pursuant to this Section 2.1.2 in an aggregate amount
for all periods greater than (i) its Percentage Interest multiplied by
(ii) $3,500,000. Each Funding Notice shall describe the Shortfall
Disbursement and set forth the Required Additional Contribution of each
Partner as determined pursuant to this Section 2.1.2. If a Funding Notice
is properly issued as provided above in this Section 2.1.2, each Partner
shall contribute the amount required to be contributed by such Partner
pursuant to this Section 2.1.2 ("Required Additional Contributions") on or
before the Due Date therefor under Section 2.2.1.
2.2 Withdrawal of Capital; Return of Capital; Deficit Balance in Capital
Account; Additional Capital Contributions and Capital Calls.
2.2.1 If a Funding Notice is properly given by the Blackstone General
Partner pursuant to Section 2.1.2 or the general partner of an REO
Partnership pursuant to Section 2.1.2 of the REO Partnership Agreement,
each Partner shall have the obligation to contribute additional cash to the
capital of the Partnership (and the general partners shall have the
obligation to contribute additional cash to the capital of the REO
partnership pursuant to the REO Partnership Agreement) in an amount equal
to the product of (a) the Shortfall Disbursement multiplied by (b) such
Partner's Percentage Interest, which amount shall be used to satisfy the
items described in such Funding Notice. Each Partner shall contribute its
share of any Shortfall Disbursement within ten (10) Business Days after the
later to occur of (i) the date on which the Funding Notice with respect
thereto has been received (or deemed received hereunder) or (ii) the
required funding date that is set forth in the Funding Notice (the
expiration of such ten-day period is referred to as the "Due Date"). There
shall be a cure period of ten (10) Business Days after the Due Date for
each Partner to contribute its share of such Shortfall Disbursement, as
provided in Section 2.2.2.
2.2.2 If any Partner fails to contribute the full amount of its
Additional Capital Contributions required to be made pursuant to Section
2.1.2 within ten (10) Business Days after the Due Date thereunder (such
Partner, the "Defaulting Partner"), then, as the exclusive remedy of the
Partnership and the other Partners who are not Defaulting Partners (the
"Non-Defaulting Partners"), the Non-Defaulting Partners (in proportion to
their Percentage interests) may contribute to the Partnership the amount of
such Capital Contribution that was not made timely by the Defaulting
Partner with such contribution, at the election of the Non-Defaulting
Partners, deemed a loan (a "Default Loan") to the Defaulting Partner by the
Non-Defaulting Partner and a Capital Contribution
<PAGE>
by the Defaulting Partner to the Partnership. All distributions payable to
the Defaulting Partner hereunder will be paid to the Non-Defaulting Partner
until the Non-Defaulting Partner has received distributions otherwise
payable to the Defaulting Partner in an amount equal to the Default Loan
and interest thereon at a rate equal to the interest provided in section
2.4 below.
2.2.2.1 If the Non-Defaulting Partners that timely contribute the
amount of the Capital Contribution required to be made by the
Non-Defaulting Partners and the Non-Defaulting Partners do not elect to
treat such contribution as a loan as provided in Section 2.2.2, the
Percentage Interests shall be adjusted, by reducing the Percentage Interest
of the Defaulting Partner (and increasing the Percentage Interest of the
Non-Defaulting Partners by the amount of such reduction) to the amount
determined by subtracting from such Percentage Interest the percentage
obtained by multiplying (A) the Defaulting Partner's Percentage Interest by
(B) a fraction, (x) the numerator of which is 150% of the amount of the
Required Additional Contribution that was not made timely by the Defaulting
Partner, and (y) the denominator of which shall be the sum of the numerator
plus the Capital Contributions made by the Defaulting Partner for all
periods. The Capital Contributions made (or deemed made) by the
Non-Defaulting Partners instead of the Defaulting Partner pursuant to
Section 2.2.2.1 shall be treated as Capital Contributions of the
Non-Defaulting Partners for all purposes of this Agreement (including for
purposes of determining whether such Partner has satisfied its potential
maximum Capital Contribution under Section 2.1.2).
The foregoing adjustments shall not require a reallocation of Profit or
Loss, or any other tax items for any Partnership Accounting Year in respect
of which such tax items already were allocated among the Partners on any
tax return of the Partnership that was filed prior to the event giving rise
to the adjustment.
If none of the Partners timely contributes any portion of its Capital
Contribution required pursuant to a Funding Notice, there shall be no
reduction of any Partner's Percentage pursuant to this Section 2.2.2 with
respect to the failure of a partner to timely make Capital Contributions
under such Funding Notice.
2.2.3 Except as otherwise specifically set forth in this Agreement, no
Partner shall have the right to (i) make any Capital Contribution to the
Partnership, (ii) withdraw such Partner's Capital Contribution or to demand
or receive the return of a Capital Contribution or make any claim to any
portion of Partnership capital or (iii) demand or receive property other
than cash in return for a Capital Contribution or to receive any cash in
return for a Capital Contribution.
2.2.4 Except as expressly provided in this Agreement, no Partner shall
have personal liability to make any Capital Contribution.
2.2.5 A deficit Capital Account of a Partner (or of a partner, member
or venturer of a Partner) shall not be deemed to be a liability of such
Partner (or of such partner, member or venturer) or an asset or property of
the Partnership (or any
<PAGE>
Partner). Furthermore, no Partner shall have any obligation to the
Partnership or any other Partner for any deficit balance in such Partner's
Capital Account.
2.3 Use of Capital Contributions; Certain Expenses.
2.3.1 The initial Capital Contributions made pursuant to Section 2.1.1
shall be used as follows: (i) to pay unpaid third-party formation and
start-up costs of the Partnership, including the costs of entering into
this Agreement and any reimbursements to the Partners with respect to due
diligence, formation and start-up expenditures, including attorneys' fees
and expenses and qualification costs (and to reimburse each Partner for
portions thereof already paid by such Partner or its Affiliates), such
amounts (a) to include the Partners' attorneys' fees and expenses in
connection with the preparation of this Agreement, and the documents
contemplated hereby, and (b) to be paid or reimbursed to the Partners on
behalf of the Partnership out of such Capital Contributions promptly after
invoices for such amounts are submitted to the General Partners, and (ii)
the balance, if any, shall be held in reserves pending expenditure as set
forth in an Approved Budget (or otherwise as Approved by the Partners or
permitted without such Approval under Section 5.1.3.2). The Partnership's
reasonable expenses of acquiring the REO Partnership Interests and the
Properties that have been funded by the Partners shall be set forth on
Exhibit B and Exhibit B-1, respectively, promptly following the Agreement
Date. Such payments shall be treated as Capital Contributions pursuant to
Section 2.1.1, shall be credited to the Partner's Capital Account, in each
case as of the Agreement Date and shall be reimbursed by the Partnership as
necessary to cause the Capital Contributions of the Partners to be in
proportion to the Partners' respective Percentage Interests.
2.4 Loans to the Partnership. To the extent available cash flow, borrowings
and Capital Contributions, including Required Additional Contributions under
Section 2.1.2, are insufficient for the reasonable requirements of the
Partnership and the REO Partnerships, and the Partners fail, within ten (10)
days after receiving notice from the Blackstone General Partner or the Managing
General Partner requesting same, to Approve the Partners' making Capital
Contributions in excess of the remaining amount of Contributions that are
required under Section 2.1.2, the Blackstone Partners or the Insignia Partner
shall, upon notice to the other, have the unilateral right (but not the
obligation) to finance (directly, or through an Affiliate) any Partnership
expenditure by making a loan or loans to the Partnership at an interest rate
equal to the lesser of (a) twelve percent (12%) per annum, cumulative and
compounded quarterly, or (b) the maximum rate permitted by law, provided,
however, that prior to making any loan pursuant to this Section 2.4, the lending
Partners shall give at least ten (10) Business Days prior written notice to the
other Partners and offer to the other Partners the opportunity to participate
(in proportion to the Percentage Interests of the other Partners) in such loan
or loans. Any notice from a General Partner pursuant to this Section 2.4 shall
specify the amount of such loan, the share thereof which each Partner (or its
Affiliates) may lend and the earliest date on which such loan is to be made to
the Partnership (which date shall not, except in case of Emergency, be earlier
than ten (10) Business Days after such notice is received by the other
Partners). The other Partners may participate in any loan pursuant to this
Section 2.4, if at all, only by delivery to the Partnership, not later than the
date specified in such notice, of its share of such loan. All
<PAGE>
loans described in this Section 2.4 shall be repayable as provided for in
Sections 4.1 and 4.2. If the Insignia Partner elects not to participate in a
loan, the Blackstone General Partner, on behalf of the Blackstone Partners, may
elect to loan a proportionate amount to the Insignia Partner to be loaned to the
Partnership by the Insignia Partner.
ARTICLE 3
ALLOCATIONS
3.1 Establishment and Maintenance of Capital Accounts; Partnership Status.
The Blackstone General Partner shall establish and cause the Partnership to
maintain a single Capital Account for each Partner which reflects each Partner's
Capital Contributions to the Partnership. Each Capital Account shall also
reflect the allocations and distributions made pursuant to Articles 3 and 4 and
otherwise be adjusted in accordance with Code Section 704 and the principles set
forth in Regulations Sections 1.704-l(b) and 1.704-2. In applying such
principles, any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-l(b)(2)(iv)(i) shall be allocated among the Partners
in the same manner as such expenditures would be allocated among the Partners
pursuant to this Article 3 if such expenditures were treated as additional items
of deduction of the Partnership that were recognized and required to be
allocated among the Partners pursuant to this Article 3 with respect to the
Partnership Accounting Year in which such expenditures were made. The Partners
intend that the Partnership be treated as a partnership for tax purposes.
3.2 Profit and Loss Allocations. Except as expressly provided to the
contrary in this Section 3.2, for purposes of determining Capital Account
balances under this Section 3.2, (a) Profit and Loss with respect to any
Partnership Accounting Year shall be allocated prior to reducing Capital
Accounts by any distributions with respect to such Partnership Accounting Year,
and (b) Section 3.2 shall be applied before applying Section 3.3.
Notwithstanding anything to the contrary in this Article 3, the allocations of
Profit and Loss pursuant to this Article 3 are intended to satisfy the
"fractions" and "substantial economic effect" rules contained in Section
514(c)(9)(E) of the Code, and Profits and Losses shall be allocated among the
Partners only to the extent that such allocations would not violate such rules.
3.2.1 Loss. For each Partnership Accounting Year from the Agreement
Date until the termination of the Partnership, Loss from Partnership
operations shall be allocated among the Partners in the following order of
priority:
3.2.1.1 First, to offset any cumulative Profits allocated to the
Partners pursuant to Section 3.2.2.2; and
3.2.1.2 Thereafter, after giving effect to the allocations made
pursuant to Section 3.2.1.1, among the Partners in proportion to the
Partners' then respective Percentage Interests.
<PAGE>
3.2.2 Profit. For each Partnership Accounting Year, Profit shall be
allocated in the following order of priority:
3.2.2.1 First, to offset any cumulative losses allocated to the
Partners pursuant to Section 3.2.1.2,
3.2.2.2 Thereafter, giving effect to the Allocations made
pursuant to Section 3.2.2.1, among the Partners in proportion to the
Partners' then effective Percentage Interests.
3.2.3 Rules of Construction.
3.2.3.1 For purposes of applying Section 3.3 as a result of a
disposition occurring with respect to part (but less than all) of any
capital asset of the Partnership, a Partner's Capital Account balance
shall be deemed to be increased by such Partner's share of Partnership
Minimum Gain and Partner Nonrecourse Debt Minimum Gain remaining after
such disposition as determined under the Regulations under Code
Section 704(b).
3.2.3.2 Except as is otherwise provided in this Article 3, an
allocation of Partnership taxable income or taxable loss to a Partner
shall be treated as an allocation to such Partner of the same share of
each item of income, gain, loss and deduction that has been taken into
account in computing such taxable income or taxable loss.
3.3 Minimum Gain Chargeback and Qualified Income Offset.
3.3.1 No Impermissible Deficits. Notwithstanding any other provision
of this Agreement, taxable loss (or items of deduction) shall not be
allocated to a Partner to the extent that the Partner has or would have, as
a result of such allocations, an Adjusted Capital Account Deficit. Any
taxable loss (or items of deduction) which otherwise would be allocated to
a Partner, but which cannot be allocated to such Partner because of the
application of the immediately preceding sentence, shall instead be
allocated to the other Partners.
3.3.2 Qualified Income Offset. In order to comply with the "qualified
income offset" requirement of the Regulations under Code Section 704(b),
and notwithstanding any other provision of this Agreement to the contrary
except Sections 3.3.3 and 3.4.3 below, in the event a Partner for any
reason (whether or not expected) has an Adjusted Capital Account Deficit,
items of Profits (consisting of a pro rata portion of each item of income
comprising the Partnership's Profits, including both gross income and gain
for the taxable year) shall be allocated to such Partner in an amount and
manner sufficient to eliminate as quickly as possible the Adjusted Capital
Account Deficit.
3.3.3 Minimum Gain Chargeback. In order to comply with the "minimum
gain chargeback" requirements of Regulations Sections 1.704-2(f)(1) and
<PAGE>
1.704-2(i)(4), and notwithstanding any other provision of this Agreement to
the contrary, in the event there is a net decrease in a Partner's share of
Partnership Minimum Gain and/or Partner Nonrecourse Debt Minimum Gain
during a Partnership taxable year, such Partner shall be specially
allocated items of income and gain for that year (and if necessary, other
years) in an amount equal to its respective share of such net decrease
during such year, determined pursuant to Regulations Sections 1.704-2(g)
and 1.704-(2)(i)(5) as required by and in accordance with Regulations
Sections 1.704-2(f) and 1.704-2(i)(4) before any other allocation is made.
3.4 Other Tax Allocation Provisions.
3.4.1 Income Characterization. For purposes of determining the
character (as ordinary income or capital gain) of any Profit allocated to
the Partners pursuant to Section 3.3 or 3.4, such portion of the taxable
income of the Partnership allocated pursuant to Section 3.3 which is
treated as ordinary income attributable to the recapture of depreciation
shall, to the extent possible, be allocated among the Partners in the
proportion which (i) the amount of depreciation previously allocated to
each Partner bears to (ii) the total of such depreciation allocated to all
Partners. This Section 3.4.1 shall not alter the amount of allocations
among the Partners pursuant to Section 3.2 but merely the character of
income so allocated.
3.4.2 Change in Percentage Interests. Notwithstanding the foregoing,
in the event any Partner's Percentage Interest changes during a fiscal year
for any reason other than an adjustment thereof pursuant to Section
2.2.2.1, including the Transfer of any interest in the Partnership, the
allocations of taxable income or loss under this Article 3, and
distributions, shall be adjusted as necessary to reflect the varying
interests of the Partners during such year using an interim closing of the
books method as of the date of such change, or such other method as is
Approved by the General Partners.
3.4.3 Mandatory Allocations -- Section 704(c) and Partner Nonrecourse
Debt.
3.4.3.1 Notwithstanding the foregoing, (i) in the event Code
Section 704(c) or Code Section 704(c) principles applicable under
Regulations Section 1.704-1(b)(2)(iv) require allocations of income or
loss of the Partnership in a manner different than that set forth
above, the provisions of Code Sections 704(b) and 704(c) and the
Regulations thereunder shall control such allocations among the
Partners; and (ii) all tax deductions and taxable losses of the
Partnership that, pursuant to Regulations Section 1.704- 2(i), are
attributable to a Partner Nonrecourse Debt for which a Partner (or a
Person related to such Partner under Treasury Regulations Section
1.752-4(b)) bears the economic risk of loss (within the meaning of
Regulations Section 1.752-2) shall be allocated to such Partner as
required by Regulations Section 1.704-2.
3.4.3.2 Any item of income, gain, loss and deduction with respect
to any property (other than cash) that has been contributed by a
Partner to the capital of the Partnership or which has been revalued
for Capital Account
<PAGE>
purposes pursuant to Regulations Section 1.704-1(b)(2)(iv) and which
is required or permitted to be allocated to such Partner for income
tax purposes under Code Section 704(c) so as to take into account the
variation between the tax basis of such property and its fair market
value at the time of its contribution or at the time of its
revaluation for Capital Account purposes pursuant to Regulations
Section 1.704-1(b)(2)(iv) (such contributed or revalued property is
referred to as "Revalued Property") shall be allocated solely for
income tax purposes in the manner so required or permitted under Code
Section 704(c) using the "traditional method" described in Regulations
Section 1.704-3(b) (or any successor Regulation), such allocations to
be made as shall be Approved by the General Partners; provided,
however, that curative allocations consisting of the special
allocation of gain or loss upon the sale or other disposition of the
Revalued Property shall be made in accordance with Regulations Section
1.704-3(c) to the extent necessary to eliminate any disparity, to the
extent possible, between the Partners' book and tax Capital Accounts
attributable to such property; and further provided, however, that any
other method allowable under applicable Regulations may be used in
connection with any Revalued Property as shall be Approved by the
General Partners. Notwithstanding anything in this Agreement to the
contrary, the determination of Gross Asset Value for any asset
contributed to the Partnership, distributed from the Partnership or
any other Revalued Property shall be as Approved by the General
Partners.
3.4.4 Guarantee of Partnership Indebtedness. Except for arrangements
expressly described in this Agreement (including loans described in
Section 2.2.2 or 2.4), no Partner shall enter into (or permit any Person
related to the Partner to enter into) any arrangement with respect to any
liability of the Partnership that would result in such Partner (or a Person
related to such Partner under Regulations Section 1.752- 4(b)) bearing the
economic risk of loss (within the meaning of Regulations Section 1.752-2)
with respect to such liability unless such arrangement has been Approved by
the General Partners. To the extent a Partner is permitted to guarantee the
repayment of any Partnership indebtedness under this Agreement, each of the
other Partners shall be afforded the opportunity to guarantee such
Partner's pro rata share of such indebtedness, determined in accordance
with the Partners' respective Percentage Interests. If a loan is to be made
to the Partnership and such loan is to be guaranteed by any Partners or
their Affiliates (which guaranty by a Partner or such Partner's Affiliate
shall occur only upon the Approval of the General Partners and the Approval
of such Partner), then such guaranty shall be made in the proportion that
is Approved by the General Partners. Nothing in this Section 3.4.4 shall
prohibit the Blackstone General Partner from entering into any contract or
other arrangement that has been Approved by the General Partners (or
otherwise is permitted to be entered into under this Agreement without the
Approval of the General Partners) and that results in contingent liability
for the Blackstone General Partner by operation of law by reason of the
Blackstone General Partner being a general partner of the Partnership.
3.4.5 References to Regulations. Any reference in this Agreement to a
provision of final, proposed and/or temporary Regulations shall, in the
event such provision is modified or renumbered, be deemed to refer to the
successor provision as so modified or renumbered, but only to the extent
such successor provision applies to the
<PAGE>
Partnership under the effective date rules applicable to such successor
provision or the Partners otherwise so Approve under applicable elections
contained in such Regulations.
3.4.6 Tax Definitions.
3.4.6.1 "Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(c). The amount of Nonrecourse Deductions
for a Partnership Accounting Year equals the excess, if any, of the
net increase, if any, in the amount of Partnership Minimum Gain during
that fiscal year, over the aggregate amount of any distributions
during that fiscal year of proceeds of a Nonrecourse Liability that
are allocable to an increase in Partnership Minimum Gain, determined
according to the provisions of Regulations Section 1.704-2(c).
3.4.6.2 "Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.704-2(b)(3).
3.4.6.3 "Partner Nonrecourse Debt Minimum Gain" means an amount,
with respect to each Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would result if such Partner Nonrecourse
Debt were treated as a Nonrecourse Liability, determined in accordance
with Regulations Section 1.704-2(i)(2).
3.4.6.4 "Partner Nonrecourse Debt" has the meaning for the term
"Partner Nonrecourse Debt" set forth in Regulations Section 1.704-
2(b)(4).
3.4.6.5 "Partner Nonrecourse Deductions" has the meaning for the
term "Partner Nonrecourse Deductions" set forth in Regulations Section
1.704-2(i). The amount of Partner Nonrecourse Deductions with respect
to a Partner Nonrecourse Debt for a Partnership Accounting Year equals
the excess, if any, (i) of the net increase, if any, in the amount of
the Partnership Minimum Gain attributable to such Partner Nonrecourse
Debt during such Partnership Accounting Year, over (ii) the aggregate
amount of any distributions during such year to the Partner that bears
the economic risk of loss for such Partner Nonrecourse Debt to the
extent such distributions are from proceeds of such Partner
Nonrecourse Debt and are allocable to an increase in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined according to the provisions of Regulations Section
1.704-2(i).
3.4.6.6 "Partnership Minimum Gain" has the meaning ascribed to
the term "Partnership Minimum Gain" in Regulations Section 1.704-
2(d)(1).
3.5 Basis Elections. In the event of a transfer of all or any part of a
Partner's interest in the Partnership, the Partnership shall make the election
described in Code Section 754 to adjust the basis of the Partnership's assets
under Code Section 743(b). The transferor or transferee of a Partnership
interest shall pay all costs of preparing and filing all instruments or
documents necessary to effectuate such election if made.
<PAGE>
3.6 General Allocation Rules. All Profit and Loss of the Partnership shall
be allocated with respect to each Partnership Accounting Year (or part thereof)
as of the end of, and within ninety (90) days after the end of, such year, or as
soon thereafter as is practically possible. All Profit and Loss shall be
allocated to the Partners shown on the records of the Partnership to have been
Partners as of the last day of the Partnership Accounting Year for which such
allocation is to be made, except that, if a Partner sells or exchanges its
interest in the Partnership or otherwise is admitted as a substituted Partner,
the Profit or Loss shall be allocated between the transferor and the transferee
by taking into account their varying interests during the Partnership Accounting
Year in accordance with Code Section 706(d), using the interim closing of the
books method or such other method as shall be Approved by the General Partners.
3.7 Sharing of Partnership Nonrecourse Debt. Throughout the term of the
Partnership, the nonrecourse debt of the Partnership (other than Partner
Nonrecourse Debt) shall be allocated for tax purposes among the Partners in
accordance with their then respective Percentage Interests. To the extent that
any Partner's share of such nonrecourse debt as so specified exceeds the amounts
referred to in Regulations Sections 1.752-3(a)(1) and (2), it is intended that
the foregoing shares shall be viewed and treated as reasonably consistent with
allocations (which have substantial economic effect) of some significant item of
partnership income or gain within the meaning of Regulations Section
1.752-3(a)(3).
3.8 Adjustment of Gross Asset Value. Gross Asset Value, with respect to any
asset, shall be the adjusted basis for federal income tax purposes of that
asset, except as follows:
3.8.1 Except as provided in Section 2.1.1, the initial Gross Asset
Value of any asset contributed (or deemed contributed under Regulations
Section 1.708-1(b)(1)(iv)) by a Partner to the Partnership shall be the
fair market value of the asset on the date of the contribution, as Approved
by the General Partners (subject to Section 5.9(iii).
3.8.2 The Gross Asset Values of all Partnership assets shall be
adjusted to equal the respective fair market values of the assets, as
Approved by the General Partners (subject to Section 5.9(iii):
3.8.2.1 If the Partners Approve that an adjustment is necessary
or appropriate to reflect the relative economic interests of the
Partners in the Partnership, as a result of (i) the acquisition of an
additional interest in the Partnership by any new or existing Partner
in exchange for more than a de minimis capital contribution; or
(ii) the distribution by the Partnership to a Partner of more than a
de minimis amount of Partnership property as consideration for an
interest in the Partnership; and
3.8.2.2 As of the liquidation of the Partnership within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g).
<PAGE>
3.8.3 The Gross Asset Value of any Partnership asset distributed to
any Partner shall be the gross fair market value of the asset on the date
of distribution as Approved by the General Partners (subject to Section
5.9(iii) (less any liabilities assumed by the distributee Partner or to
which such asset is subject as of the time of distribution).
3.8.4 The Gross Asset Values of Partnership assets shall be increased
or decreased to reflect any adjustment to the adjusted basis of the assets
under Code Section 734(b) or 743(b), but only to the extent that the
adjustment is taken into account in determining Capital Accounts under
Regulations Section 1.704-1(b)(2)(iv)(m), provided that Gross Asset Values
shall not be adjusted under this Section 3.8.4 to the extent that the
General Partners Approve that an adjustment under Section 3.8.2 is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment under this Section 3.8.4.
After the Gross Asset Value of any asset has been determined or adjusted
under Section 3.8.1, 3.8.2 or 3.8.4, Gross Asset Value shall be adjusted by
the depreciation taken into account with respect to the asset for purposes
of computing Profits or Loss.
3.9 Approvals Relating to Tax Issues.
During all periods, all material tax elections, the determination of Gross
Asset Value for any property, other decisions relating to taxes and tax returns,
require the Approval of the General Partners.
ARTICLE 4
LOAN REPAYMENTS AND
DISTRIBUTIONS
4.1 Net Available Cash. The Blackstone General Partner shall, at the end of
each quarter, determine the amount of Net Available Cash. All Net Available Cash
for any period shall be distributed in the following order of priority within
thirty (30) days after the end of each calendar quarter, after first repaying
any loans to the Partnership from the Partners under Section 2.4 (loans which
have been outstanding the longest shall be repaid first and if two or more
Partners have loans which have been outstanding for equal periods, repayment of
such loans shall be made pro rata, in proportion to the Partners' then
respective loan balances, with payments first repaying accrued but unpaid
interest and then repaying principal) and subject to the terms of Sections 4.2
and 4.3, to the Partners in proportion to the Partners' respective Percentage
Interests.
4.2 Proceeds and Distributions in Liquidation. The proceeds received by the
Partnership in connection with the liquidation and winding up of the Partnership
shall be applied in the following order of priority:
<PAGE>
4.2.1 First, to the payment of creditors of the Partnership (including
any creditors that are also Partners), except secured creditors whose
obligations will be assumed or otherwise transferred on a liquidation of
the Partnership property or assets;
4.2.2 Second, to the payment of expenses incurred in the dissolution
and termination of the Partnership; and
4.2.3 Third, the balance, if any, shall be distributed to the Partners
in accordance with the positive Capital Asset balances of the Partners.
4.3 General Distribution Rules. The timing and amount of all distributions
shall be in accordance with Sections 4.1, 4.2, 8.4 and 8.5. All distributions of
cash shall be made to the Partners shown on the records of the Partnership to
have been Partners on the date of the distribution. All distributions, upon
request by a Partner, shall be made by wire transfer in immediately available
funds to such Partner's account specified in such request. Distributions of Net
Available Cash made to a Partner shall be deemed to be advances on account of
such Partner's share of the distributable amounts thereof. For purposes of this
Agreement, the term "distributable" with respect to such distributions shall
mean the amount of such distributions as finally determined pursuant to the
provisions of this Agreement by the Partners for the Partnership Accounting Year
in respect of which they were made and for the term of the Partnership.
4.4 Source of Distributions. Each Partner shall look solely to the assets
of the Partnership for the return of its Capital Contributions and its share of
distributions and shall have no recourse upon dissolution or otherwise against
the Partnership, the Partners or the Liquidator. No holder of an interest in the
Partnership shall have any right to receive any distributions except as provided
in this Agreement or any right to demand or receive property other than cash
upon dissolution and termination of the Partnership.
ARTICLE 5
MANAGEMENT; DUTIES AND POWERS OF THE GENERAL
PARTNER AND PARTNERS; RIGHTS AND DUTIES OF PARTNERS
5.1 Management of Business; Partner Obligations; Reimbursements; Major
Decisions; Retained Approvals.
5.1.1 Management. The Partnership shall be managed by the Blackstone
General Partner, subject to the Approval rights of the Managing General
Partner under this Agreement. Except to the extent the Approval of the
Managing General Partner is expressly required under this Agreement, no
consent or Approval of the Managing General Partner shall be required with
respect to any action or decision of the Blackstone General Partner with
respect to Partnership matters. Except as otherwise provided in this
Agreement, the Blackstone General Partner shall be responsible for
supervising and undertaking the
<PAGE>
business of the Partnership and shall make all decisions affecting the
day-to-day operations of the Partnership, the REO Partnerships. The
Blackstone General Partner and the Managing General Partner shall cause
each of its Authorized Representatives to devote as much time as is
reasonably necessary to fulfill such Partner's obligations under this
Agreement.
The General Partners, at Partnership expense, shall be responsible for
obtaining appropriate information and conducting due diligence concerning
the Properties and the REO Partnerships and negotiating the purchase of the
Properties and the REO Partnerships on behalf of the Partnership. The
General Partners shall negotiate all documents with respect to Properties
and the REO Partnerships that are Approved by the General Partners,
including the Approved Contracts, contracts with surveyors, architects,
governmental authorities and others concerning entitlements, easements,
surveying, landscaping, insuring, zoning, construction, grading,
improvements, and the like, all leases related to the Properties, offers
and terms of sale of the Partnership assets, and contracts for necessary
goods or services or borrowings regarding the Properties; all to the extent
Approved by the General Partners from time to time.
The signature of the Blackstone General Partner shall be required on
all contracts and documents of the Partnership and shall be required to
bind and shall be binding upon the Partnership for all purposes, and third
parties shall be entitled to rely on the authority of the Blackstone
General Partner to take any action on behalf of the Partnership.
Notwithstanding the foregoing, the Blackstone General Partner shall not
take any action requiring Approval of the General Partners under this
Agreement unless the provisions of this Agreement concerning such Approval
have been fully satisfied.
The exercise by the Limited Partner of any right or power conferred to
it herein shall not be construed to constitute participation by the Limited
Partner in the control of the business of the Partnership so as to make the
Limited Partner liable as a general partner for the debts and obligations
of the Partnership. If any right or power conferred on the Limited Partner
herein would have the effect of causing the Limited Partner to be liable as
a general partner of the Partnership, the Limited Partner shall be deemed
to not have such right or power.
5.1.2 Compensation; Reimbursement. Other than fees,
reimbursements or commissions otherwise permitted under this
Agreement, no compensation shall be payable by the Partnership to any
Partner or to an Affiliate of any Partner. The Partnership shall
reimburse the Partners for their actual and reasonable out-of-pocket
expenses incurred in connection with Partnership business to the
extent such Partner is authorized to take the action resulting in such
expenses, including those expenses that are described in this Section
5.1, or that are otherwise specifically authorized by this Agreement
(including Section 5.1.3). Promptly following the Agreement Date, the
General Partners shall cause the Partnership to reimburse or pay, as
the case may be (from the initial Capital Contributions to the
Partnership), the expenses described in Section 2.3.
5.1.3 Permitted Expenditures. The Blackstone General Partner
shall not, without the Approval of the Managing General Partner, make
any
<PAGE>
expenditure of funds of the Partnership, or commit to make any such
expenditure, other than in response to an Emergency, except as
provided for in an Approved Budget of an REO Partnership; provided,
however, the provisions of this Section 5.1.3 shall in no way limit
the General Partner's authority to cause the Partnership to fund
Emergency expenditures or Non- Discretionary Items when due that are
billed to or incurred by the Partnership or an REO Partnership in
excess of the amounts budgeted therefor. Notice of Emergency
expenditures or actions shall be given by the Blackstone General
Partner as soon as practicable after such expenditures are made or
actions are taken.
5.1.4 Powers of the General Partner. The Blackstone General
Partner, in extension and not in limitation of the powers given to it
by law or this Agreement, shall have full power and shall have the
obligation, without the necessity of obtaining the Approval of the
Managing General Partner, and at the expense of the Partnership, to
take all actions required to conduct the day-to-day operations of the
Partnership and, subject to the availability of Partnership funds and
the funding limitations of Section 5.1.3., implement the Major
Decisions and other decisions that have been Approved by the General
Partners and pay expenses of the Partnership to the extent the
Approval of the Managing General Partner with respect thereto is not
required under this Agreement.
5.1.4.1 Employees. The Partnership shall not have any employees.
5.1.4.2 General Partner Duties. The Blackstone General Partner
shall use its reasonable efforts, subject to the availability of
Partnership funds, to (i) cause the Partnership to enter into any
Approved Contracts and take the other actions that are described in
Section 1.4 and 1.9 that have been Approved by the General Partners,
(ii) cause the Major Decisions and other actions that have been
Approved by the General Partners to be implemented, (iii) cause the
Partnership to timely issue the reports and tax returns required under
this Agreement, (iv) undertake its other obligations under this
Agreement. and (v) monitor and supervise the performance of Persons
contracting with the Partnership. The Blackstone General Partner shall
not be required to conduct the Partnership's day-to-day operations and
implement Major Decisions as the General Partner's sole and exclusive
function, and it and its Affiliates may (and expect to) have other
business interests and may (and expect to) engage in other activities
in addition to those relating to the Partnership, without having or
incurring any obligation to offer any interest in such activities to
the Partnership or any Partner. Notwithstanding the foregoing, the
Blackstone General Partner shall be obligated to devote, and cause its
Controlling persons to devote, so much of their time to the
Partnership's business as shall be reasonably required to meet the
Blackstone General Partner's obligations hereunder and the obligations
of any of its Affiliates to the Partnership under any contracts with
the Partnership.
5.1.5 Major Decisions. The following are major decisions (the
"Major Decisions") requiring the Approval of the General Partners:
5.1.5.1 Any act in contravention of this Agreement or
extending the term of the Partnership.
<PAGE>
5.1.5.2 Amending this Agreement to the benefit or detriment
of any Partner.
5.1.5.3 Establishing or adjusting Gross Asset Value under
Section 3.8 for any contributed asset or distributed asset or
other Revalued Properties; Indemnification of any Person other
than a Partner or its Affiliates pursuant to Section 5.5.2 or
otherwise as permitted by this Agreement;
5.1.5.4 Except for liabilities to which the Blackstone
General Partner is subject as a matter of law by reason of being
a General Partner, entering into any agreement (i) which would
cause any Partner to become personally liable on or in respect of
or to guarantee any indebtedness of the Partnership or (ii) which
is not nonrecourse to such Partner;
5.1.5.5 Causing the Partnership to redeem or repurchase all
or any portion of the interest of a Partner (not including any
change in Percentage Interests pursuant to Section 2.2.2.1) or
causing the Partnership to enter into any contract in connection
with the acquisition, leasing or disposition of the Properties
other than an Approved Contract; or to borrow money from a
Partner or its Affiliates except pursuant to Sections 2.2.2 or
2.4;
5.1.5.6 Causing or permitting the Partnership to be merged
with any other entity; selling Partnership assets for
consideration including notes payable; or otherwise disposing of
Partnership assets;
5.1.5.7 Establishing or adjusting Gross Asset Value under
Section 3.8 for any contributed asset or distributed asset or
other Revalued Property;
5.1.5.8 Causing or permitting the Partnership to make loans
to, or (except for Approved Contracts or as provided in the REO
Partnership Agreements) enter into any contract with any Partner
or any Affiliate of a Partner;
5.1.5.9 Dissolving, terminating or liquidating the
Partnership, except as provided in Article 8 of this Agreement;
5.1.5.10 Terminating or substantially modifying any Approved
Contract, disposing of the REO Partnership Interests any other
asset of the Partnership (or any portion thereof) or permitting
an encumbrance to be placed on Partnership assets other than as
contemplated by the Approved Contracts, unless such action has
been Approved by the General Partners. Notwithstanding any
provision herein, the Blackstone General Partner may enforce
(including termination where permitted under the Management
Agreement) the Management Agreement in its sole discretion,
without any approval rights given to the Managing General
Partner);
<PAGE>
5.1.5.11 Obtain any third-party loans other than those
Approved by the General Partners to be entered into in connection
with the Approved Contracts (whether secured or unsecured), or,
in connection with any third-party loan Approved by the General
Partners, execute or deliver on behalf of the Partnership any
guarantee or other agreement whereby the Partnership is or may
become liable for any obligations of any other Entity;
5.1.5.12 Acquire any asset other than pursuant to Approved
Contracts, or take any action on behalf of the Partnership that
is not within the scope of the Partnership purposes as set forth
in Sections 1.4 and 1.9;
5.1.5.13 Modify, prepay or refinance any indebtedness of the
Partnership other than those Approved by the General Partners to
be lenders in connection with the Approved Contracts;
5.1.5.14 Commence, dismiss, terminate or settle any material
litigation matter, material condemnation claim, or any matter or
claim (including an insurance claim) in connection with which the
amount in controversy is reasonably expected to exceed One
Hundred Thousand Dollars ($100,000);
5.1.5.15 Make any distribution except as permitted under
Article 4 except in connection with the liquidation of the
Partnership under Article 8, or make any Partnership expenditure
except as otherwise permitted or authorized by this Agreement
(including Section 5.1.3);
5.1.5.16 Except as otherwise provided in Sections 7.1(a),
admit transferee Partners to the Partnership as substituted
Partners or enter into financing that participates in profits;
or, except as provided in Article 7, permit any Transfer of any
interest in the Partnership to the extent Approval of the General
Partners for such Transfer is required under this Agreement; or
5.1.5.17 Confess any judgment against the Partnership or
cause the Partnership to file for Bankruptcy or other relief from
creditors; or
The enumeration of the foregoing rights shall not diminish or affect the
existence or exercise of other rights expressly granted to each of the Partners
under this Agreement. In the event of a deadlock in obtaining the Approval of
the General Partners with respect to any Major Decision, the deadlock shall be
resolved as provided in Section 5.9.
5.1.5.18 Approval Procedure. Notice of the request for the
Managing General Partner's Approval of any matter for which such
Approval is required pursuant to this Agreement shall be
delivered by the Blackstone General Partner to each Authorized
Representative of the Managing General Partner, the Partner's
summary and analysis of any other matter for which such Approval
is requested and the Partner's recommendations with respect to
any matter for which Approval is requested. Unless some other
time is specified in this Agreement, each such Authorized
Representative shall approve
<PAGE>
or disapprove such matter by notice to the Blackstone General
Partner given within ten (10) Business Days following delivery of
such notice. Failure of all Authorized Representatives of any
Managing General Partner to timely respond by written notice to
the Authorized Representatives of the Blackstone General Partner,
indicating Approval or disapproval of such matter, shall be
deemed Approval by all Authorized Representative of such matter
for which Approval is requested. From and after any such
submission to the Authorized Representatives of the Partners, and
continuing until the matters addressed in such submission are
Approved or otherwise resolved, each such Authorized
Representative shall, upon request to the Partner who has
possession thereof, be furnished promptly with access to or, if
feasible, copies of such additional information and all Due
Diligence Materials which become available to such Partner that
are requested by the Partner whose Approval has been sought.
Notwithstanding anything to the contrary contained herein, (i)
the Blackstone General Partner may enter into commercial leases
without the Managing General Partner's Approval provided such
commercial leases cover demised premises of 5,000 rentable square
feet or less, and (ii) no Approval shall be required with respect
to any financing or refinancing that meets the parameters set
forth in the letter attached hereto as Exhibit C.
5.2 Sale of Properties.
Right to Sell. The foregoing notwithstanding, in connection with any
proposed sale of any REO Partnership Interest by the Partnership, the Blackstone
General Partner shall in good faith consider retention of an affiliate of the
Managing General Partner as the exclusive broker for marketing such interest for
sale and to complete a sale of any such interest for compensation commensurate
with that which would be paid to a third party performing similar services in a
similar geographic location.
5.3 Reporting Requirements; Financials; Meetings.
5.3.1 Governmental Reports; Meetings. The Blackstone General Partner
shall, at Partnership expense, use reasonable efforts to cause to be
prepared and timely filed with appropriate federal, state and foreign
regulatory and administrative bodies, all reports required to be filed with
such entities under then current applicable laws, rules and regulations.
Such reports shall be prepared on the accounting or reporting basis
required by such regulatory bodies. The Partners shall be provided with a
copy of any such report. No meeting of the Partners shall be required
unless requested by any Partner upon notice to all Partners, which notice
may be given by any Partner at any time. All Partners shall be given
written notice of any meeting of the Partnership at least twenty (20) days
prior to any such meeting by the Partner requesting such meeting. Any
meetings shall be held at the record-keeping office of the Partnership or
at any other reasonably convenient location within the United States as the
Partners may Approve and specify in such notice.
5.3.2 Access; Audit. The Blackstone General Partner shall permit any
Partner to review and copy, during normal business hours at the office of
the Partnership, all Partnership financial records and information. Each
Partner shall have the
<PAGE>
right to have such records and information audited at such Partner's
expense to the extent such audit is not required at Partnership expense
under Section 5.3.3(i). The Blackstone General Partner shall maintain (at
the office of the Partnership) reports required or otherwise prepared and
delivered hereunder, copies of which shall be furnished to each Partner
when available, at the Partnership's expense, together with such
supplementary records and reports as are necessary to reflect the
allocation among the Partners of the tax items and distributions of the
Partnership. The Partnership's annual financial statements (and such other
financial statements as required by loan documents to which the Partnership
is a party) shall be audited at the Partnership's expense.
5.3.3 Financials and Status Reports. The Blackstone General Partner
shall cause the following reports to be issued:
(i) At Partnership expense, the Blackstone General Partner shall
use reasonable efforts to cause to be issued to the Partners annual
financials, in reasonable detail, which shall be prepared by the
Partnership's independent certified public accountants at Partnership
expense, within sixty (60) days after the close of each year
(including a balance sheet and income and expense statements, sources
and uses of funds, cash on hand, distributions, changes in financial
position, tax information, and unrepaid Partner loans). Such financial
reports shall be prepared on an income tax basis and in accordance
with generally accepted accounting rules. As soon as is practicable
after the execution of this Agreement, the Partners shall meet to
discuss the methodology to be used in preparing such reports;
(ii) At Partnership expense, the Managing General Partner shall
use reasonable efforts to cause to be issued to the Partners quarterly
unaudited financials, in reasonable detail, within sixty (60) days
after the close of each calendar quarter (commencing with the calendar
quarter beginning on January 1, 1997), including a balance sheet,
income and expense statements, sources and uses of funds, cash on
hand, distributions, changes in financial position, and unrepaid
Partner loans;
(iii) At Partnership expense, the Managing General Partner shall
cause to be issued to the limited Partner a monthly income and expense
statement, in reasonable detail within thirty (30) days after the
close of each month, showing sources and uses of Partnership funds and
changes in the Partnership's financial position during such month. In
connection with preparing such monthly income and expense statement,
the Managing General Partner shall use commercially reasonable efforts
to review the data provided by the Property Manager that is to be
presented in such income and expense statement, such review to be
commenced and completed to the extent possible, after using
commercially reasonable efforts to do so, before the Managing General
Partner furnishes such statement to the Partners. If such review is
not completed prior to furnishing such statement, such review shall be
completed as soon as is practicable thereafter (with notice being
given to the Blackstone General Partner by the Managing General
Partner of any variance from such statement that is discovered by the
Managing General Partner in such review); and
<PAGE>
(iv) In preparing reports required under this Agreement, the
Blackstone General Partner and the Managing General may rely on
information furnished by the Property Managers to the extent that it
is reasonable to do so.
5.4 Tax Matters Partner; Tax Returns. The Blackstone General Partner is
hereby designated as the "Tax Matters Partner", as such term is defined in
Section 6231(a)(7) of the Code, and it shall serve as such at Partnership
expense with all powers granted to a tax matters partner under the Code. Each
Partner shall give prompt notice to each other Partner of any and all notices it
receives from the Internal Revenue Service (or any other taxing authority)
concerning the Partnership, including any notice of audit, any notice of action
with respect to a revenue agent's report, any notice of a 30-day appeal letter
and any notice of a deficiency in tax concerning the Partnership's federal,
state or local income tax returns. At Partnership expense, the Tax Matters
Partner shall furnish each Partner with status reports regarding any negotiation
between the Internal Revenue Service (or other taxing authority) and the
Partnership promptly after any material new development. The Tax Matters Partner
shall use its reasonable efforts to cause the Partnership's accountants to
prepare and file on a timely basis, without regard to extensions, all tax and
information returns which the Partnership may be required to file. No tax or
information return shall be filed without the reasonable Approval of the General
Partners in all cases. The Blackstone General Partner shall cause the
Partnership's accountants to prepare and deliver, at Partnership expense, to
each Partner on a timely basis an information reporting return (K-1) reflecting
each Partner's distributive share of all income, gain, loss, deductions,
allowances or credits of the Partnership for each Partnership Accounting Year,
as computed pursuant to Article 3.
5.5 Indemnification and Liability of Partners.
5.5.1 No Partner shall be liable, responsible or accountable in
damages or otherwise to any of the Partners or the Partnership for any act
or omission performed or omitted by it in good faith on behalf of the
Partnership and in a manner reasonably believed by it to be (i) within the
scope of the authority granted to it by this Agreement and (ii) in the best
interests of the Partnership, the Partners or their Affiliates unless such
Partner or such Partner's Affiliate has engaged in actual fraud,
intentional misappropriation of funds, gross negligence or breach of
fiduciary duty in connection with such act or omission.
5.5.2 The Partnership shall indemnify and hold harmless each Partner
and its Affiliates from and against any obligations, actual damages,
penalties, actions, judgments, suits, expenses, disbursements, losses,
costs or liabilities of any kind or nature whatsoever which may be imposed
upon, incurred or asserted against such Partner or its Affiliates (or the
Affiliates, partners and members of such Partner or its Affiliates)
(including reasonable attorneys' and paralegals' fees and court costs) in
connection with, due to or arising out of such Partner's serving as a
Partner or the Blackstone General Partner of the Partnership if such
Partner acted in good faith, with reasonable belief that such actions were
within the scope of authority granted to such Partner under this Agreement.
<PAGE>
5.5.3 Each Partner shall indemnify and hold harmless each other
Partner and the Partnership from and against any direct (and not
consequential or incidental) obligations, actual damages, penalties,
actions, judgments, suits, expenses, disbursements, losses, costs or
liabilities (collectively, the "Liabilities") incurred or paid by such
other Partners or the Partnership (to the extent such Liabilities are not
reimbursed by insurance proceeds or indemnities from third parties), to the
extent such Liabilities are caused by, and such Partner or such Partner's
Affiliate has engaged in, actual fraud, intentional misappropriation of
funds, gross negligence or breach of fiduciary duty.
5.5.4 In any case where indemnity is sought by a Partner, such Partner
shall give notice of the request for indemnification to the Partnership and
the other Partners from whom the indemnity is required and give them the
opportunity to the extent reasonably possible, to participate in the
defense of the claim giving rise to the claim for indemnity, all at
Partnership expense and subject to the reasonable Approval of the General
Partners.
5.6 Limitation of Liability. Each Partner's liability shall be limited as
set forth in this Agreement, the Act and other applicable law. Except as
provided in Sections 5.5.1, 5.5.3 or 7.4, a Partner shall not be personally
liable for any debts or losses of the Partnership beyond the Partner's
respective interest in the Partnership, other than distributions received by a
Partner as to which, by terms of the Act, such Partner is obligated to return.
Except as expressly provided in this Agreement, the Limited Partner shall not be
liable for the debts or obligations of the Partnership. No partner, officer,
director, shareholder, manager or member of a Partner shall be liable for the
obligations of such Partner to the Partnership or the other Partners under any
circumstances.
5.7 No Priorities. Except as specifically provided in this Agreement, no
Partner shall have any priority over any other Partner as to the return of his
or its Capital Contributions or as to distributions or allocations of Profits or
Losses or other tax items.
5.8 Determination Date for Indemnity Payments. For purposes of this
Agreement, until the "Determination Date" (defined below) has occurred, no
amount shall be due and owing by any Partner to the Partnership or to another
Partner pursuant to Section 5.5.1 or 5.5.3, 7.5 or 9.2, if there is a bona fide
dispute as to whether such amount is due or whether a Partner. The
"Determination Date" shall be deemed to have occurred only upon the earlier to
occur of the following: (a) the final determination by a Court described in
Section 9.4 that an amount described in Section 5.5.1, 5.5.3, 7.5 or 9.2 is due
and payable, and time to file a notice of appeal from such determination has
expired without such notice having been filed; or (b) the affirmation of a
determination described in preceding clause (a) by the entry of judgment to such
effect by the court to which such determination has been appealed.
5.9 Deadlock. On and after January 1, 1998, upon (i) a bona fide dispute as
to whether any Major Decision (other than the Major Decisions in Section
5.1.5.1, 5.1.5.2, 5.1.5.4, and 5.1.5.12) proposed by the Blackstone General
Partner should be Approved by the Managing General Partner or (ii) the
termination of Management
<PAGE>
Agreements (other than terminations by the Property Manager or as a result of
dispositions of the assets held by the REO Partnership) with respect to 25% or
more of the REO Partnerships (a "Deadlock"), the Managing General Partner may
issue a notice thereof to the Blackstone General Partner (a "Deadlock Notice").
The Deadlock Notice shall describe the Deadlock and the resolution proposed by
the Partner issuing the Deadlock Notice. If a Deadlock Notice is properly
issued, the Partners shall meet in good faith during the 10-day period after the
Deadlock Notice has been received. If (i) a Major Decision that is the subject
of the Deadlock is not resolved within such 10-day period or (ii) any Major
Decision that is the subject of the Deadlock at any of the REO Partnerships is
not resolved within the 10-day period applicable to such Major Decision, then:
(i) Unless the Major Decision is described in this Section 5.9(i) or
Section 5.9(iii), (a) the Managing General Partner may elect to exercise
the buy\sell provisions set forth in Section 5.9(ii) below (the "Deadlock
Election") by giving written notice of such election to the Blackstone
General Partner within ten (10) Business Days after the end of such 10-day
period, or (b) absent the timely issuance of such a Deadlock Election by
the Managing General Partner, the Blackstone General Partner's decision
with respect to the Major Decision that is the subject of such Deadlock
shall be deemed Approved. The Major Decision described in this Section
5.9(i) for which a Deadlock Election may not be issued is a Deadlock
concerning whether a Funding Notice may be issued to the extent such
Funding Notice would require Capital Contributions exceeding the dollar
limitation contained in Section 2.1.2 (the sole remedy provided under this
Agreement for such a Deadlock is provided in Section 2.4).
(ii) Within thirty (30) days after a Deadlock Election is timely
issued by the Managing General Partner pursuant to Section 5.9(i)(a), the
Managing General Partner shall give notice (a "Deadlock Amount Notice") to
the Blackstone General Partner of the amount (the "Deadlock Amount"), which
would determine the price at which the Insignia Partners or its Affiliates
or designees would be willing to (i) acquire all of the Blackstone
Partners' interests in the Partnership and the REO Partnerships or
(ii) sell the Insignia Partners' interests in the Partnership and the REO
Partnerships to the Blackstone Partners or an Affiliate or designee (the
Blackstone Partners and the Insignia Partners are each referred to herein
as a "Partner Group"). The Deadlock Amount shall be an amount equal to the
gross value of the assets of the Partnership and the REO Partnerships as
determined by the Managing General Partner. The amount which the Insignia
Partners (or Affiliates and designees) shall pay to the Blackstone Partners
and the amount which the Blackstone Partners (or Affiliates and designees)
shall pay, if the Blackstone Partners elect, to the Insignia Partners for
their respective interests in the Partnership and the REO Partnerships,
shall be the amounts the selling Partner Group would receive pursuant to
Sections 4.2.2 and 4.2.3 of this Agreement with respect to their general
and limited partner interests and the REO Partnership Agreements with
respect to their general partnership interests if all
<PAGE>
the assets of the REO Partnerships were sold for the Deadlock Amount and
the Partnership and the REO Partnerships were liquidated, after paying all
liabilities set forth on the books of the Partnership and the REO
Partnerships (the "Insignia Buy-Out Price" or the "Blackstone Buy-Out
Price", as applicable). Within sixty (60) days after receipt of a timely
Deadlock Amount Notice, the Blackstone General Partner may elect by giving
notice to the Managing General Partner to purchase (or to cause its
Affiliate or designees to purchase) the Insignia Partners' interest in the
Partnership and the REO Partnerships for the Insignia Buy-Out Price. If the
Blackstone General Partner fails to elect to purchase (or to cause its
Affiliates or designees to purchase) the Insignia Partners' interests in
the Partnership and the REO Partnerships (including any general partner
interests in any of the REO Partnerships held by Affiliates of Insignia)
pursuant to the preceding sentence within such 60-day period, the
Blackstone Partners shall sell their interests in the Partnership and the
REO Partnerships (including any general partner interests in any of the REO
Partnerships held by Affiliates of Blackstone) to the Managing General
Partner (or its Affiliates) for the Blackstone Buy-Out Price. The purchase
and sale of the interests in the Partnership and the REO Partnerships
pursuant to this Section 5.9(ii) shall be consummated on or before
thirtieth day following the expiration of the 60-day period within which
the Blackstone General Partner may elect (the "GP Election") to purchase
(or cause its Affiliate to purchase) the Blackstone Partners' interests in
the Partnership and the REO Partnerships without the Blackstone General
Partner having made such election (the "Deemed Election"); The Partner
Group obligated to purchase hereunder shall put a deposit in escrow equal
to five (5) percent of the purchase price (the "Deposit") with an escrow
agent selected by selling Partner Group within 10 days after the GP
Election is received or the Deemed Election occurs. Such Deposit shall be
(i) nonrefundable except in the case of a default by the purchasing Partner
Group and (ii) credited toward the amount to be paid at Closing by the
purchasing Partner Group. If the purchasing Partner Group defaults in its
obligation to purchase the applicable Partnership Interests of the selling
Partner Group, the Deposit will be distributed to the selling Partner
Group. At the closing, the selling Partner Group shall deliver to the
Partnership and the REO Partnerships and the purchasing Partner Group such
instruments of assignment, conveyance and transfer as the purchasing
partners may reasonably deem necessary or appropriate to consummate the
purchase and sale, and the purchasing Partner Group shall pay cash to the
selling Partner Group in an amount equal to the Blackstone Buy-Out Price or
the Insignia Buy-Out Price, as applicable. The purchasing Partner Group
shall pay all transfer taxes related to the purchase and sale. Following
the closing date, the Partnership, the REO partnerships and the purchasing
Partner Group shall indemnify and hold each selling Partner harmless from
and against all liabilities of the Partnership and the REO Partnerships
arising from acts taken or omitted to be taken by the Partnership or the
REO Partnerships after the date of the closing of the sale of such selling
Partner Group's interests to the
<PAGE>
purchasing Partner Group, except to the extent such selling Partner Group
is not entitled to be indemnified therefor under Section 5.5.2.
(iii) in the case of a Major Decision described in Section 5.1.5.7 of
this Agreement or any REO Partnership Agreement concerning the Gross Asset
Value of any property, the Deadlock concerning such Major Decision shall be
resolved in the following manner. Unless and until such Gross Asset Value
has been Approved by the General Partners or determined as provided in this
paragraph (iii), the transaction giving rise to the determination of Gross
Asset Value shall not be consummated by the Blackstone General Partner. The
Managing General Partner may give notice to the Blackstone General Partner
stating that such Partner is invoking the following procedure, setting
forth its proposed Gross Asset Value for such property (the "GAV Notice"),
and appointing a "qualified appraiser" (defined below). Within five (5)
Business Days after receiving a GAV Notice, the Blackstone General Partner
shall, by notice to the Managing General Partner, appoint a second
qualified appraiser. If the Blackstone General Partner fails timely to so
appoint such second qualified appraiser, the Gross Asset Value shall be
deemed to be that set forth in the GAV Notice. If the Blackstone General
Partner timely so appoints such second qualified appraiser, the two
appraisers so appointed shall appoint a third qualified appraiser within
ten (10) Business Days after the notice of the appointment of the second
appraiser is received by the Managing General Partner. Within five (5)
Business Days after being appointed, the third appraiser shall (A) consider
the evidence submitted by the General Partners and (B) upon notice to both
General Partners, determine such Gross Asset Value. The cost of the
appraisal shall be funded by the Partnership, and the Partners shall bear
their own attorneys fees, during the appraisal. A "qualified appraiser"
means any M.A.I. appraiser who has had over fifteen (15) years of
experience in valuing multi-family real estate.
(iv) Until it has been determined which Partner Group, if any, will
sell its Partnership Interests pursuant to Section 5.9(ii), no action shall
be taken with respect to the Major Decision that is the subject of the
Deadlock. The Partner Group that is determined to be the Buyer of the
Partnership Interests shall have the right to decide the Major Decision.
ARTICLE 6
BOOKS, RECORDS AND BANK ACCOUNTS
6.1 Books and Records. At Partnership expense, the Blackstone General
Partner shall cause to be kept (at the office of the Partnership referred to in
Section 1.3.2) accurate, just and true books of account, in which shall be
entered fully and accurately each and every transaction of the Partnership. The
books and records of the Partnership shall separately identify, and account for,
the Partnership's investment in, and the Profits, Losses and distributions
attributable to, the Properties. The books shall be kept in accordance with
<PAGE>
the Partnership's method of reporting for federal income tax purposes (which
shall be the accrual method of accounting), with supplementary records
maintained on a cash basis. Tax accounting elections, including methods of
depreciation and deduction or capitalization of interest, taxes and insurance
premiums during a construction period, if any, shall be made as the General
Partners shall Approve. The Partnership's financial statements shall be prepared
in accordance with generally accepted accounting principles, consistently
applied.
6.2 Bank Accounts. The funds of the Partnership shall be deposited in the
name of the Partnership, in such bank account or accounts as the General
Partners shall Approve and direct from time to time. Such funds shall be
invested by the Blackstone General Partner in short term instruments. Each of
the Blackstone General Partner and the Managing General Partner shall be an
individual signatory on all Partnership accounts, with the signature of any such
Partner or its designee being sufficient to effect withdrawals.
ARTICLE 7
TRANSFERS OF PARTNERSHIP INTERESTS
7.1 Restrictions on Transfer. (a) Except as hereinafter provided, no
Partner shall be permitted to Transfer all or any part of its interest in the
Partnership [or permit any Transfer of ownership interests in such Partner
unless such Transfer does not result in a change in Control of such Partner. Any
attempted or actual Transfer shall be null and void ab initio and of no force
and effect.
(b) Notwithstanding the foregoing, a Partner may Transfer all or part
of its interest in the Partnership, or allow the Transfer of ownership
interests in such Partner, as follows:
7.1.1 To the Partnership or another Partner or a partner, member or
shareholder or Affiliate of a Partner; provided however that the term
Affiliate for purposes of this Section 7.1.1. shall not include any REIT
(or any similar entity that is not subject to income tax if it meets
certain requirements relating to distributions to its shareholders and the
character of its income and assets);
7.1.2 If the proposed transferor is a natural Person, by succession or
testamentary disposition upon his death;
7.1.3 If the proposed transferor is a natural Person, to a trust for
the benefit of any Family Member with respect to the proposed transferor,
but only if the proposed transferor retains Control of the interest so
transferred;
7.1.4 Any other Transfer which is Approved by the General Partners;
<PAGE>
7.1.5 In connection with (or as the method for) a sale of all or
substantially all of the assets of the Partnership; and
7.1.6 Transfers of any interests within the limited partners (which
are Affiliates of Blackstone) of the Limited Partner as long as an
Affiliate of Blackstone remains in Control of the Limited Partner.
The following shall be conditions to any Transfer of any interest in
the Partnership pursuant to this Article 7: (i) with respect to direct
Transfers of interests in the Partnership only, the transferee shall assume
in writing each of the obligations of the transferor to the Partnership;
(ii) with respect to direct Transfers of interests in the Partnership only,
such transferee shall agree in writing to be bound by each of the terms and
conditions of this Agreement; (iii) the transferee shall deliver to the
Partnership instruments of assumption and security Approved by the General
Partners, for the payment and performance of all obligations of or
attendant to the interest so transferred and assumed; and (iv) the
requirements of Sections 7.3 and 7.4 shall be satisfied.
7.2 Take-Along Rights. There shall be no right of any other Partner to
participate in any Transfer permitted by a Partner under this Agreement.
7.3 Substitution of Partner. Subject to the restrictions and Approval
rights of the Partners as set forth in Section 7.1 and the provisions of Section
7.4, with respect to direct Transfers of interests in the Partnership only, the
assignee of any Transfer by a Partner (a "Partner Assignee") shall become a
substitute Partner only if (i) the assignor Partner so provides in an instrument
of assignment, (ii) the Partner Assignee agrees in writing to be bound by the
provisions of this Agreement and of the Certificate and any amendments hereto
and thereto, and (iii) each General Partner Approves such substitution, which
Approval may be given or withheld in its sole and absolute discretion. If the
assignor Partner so provides and the Partner Assignee agrees to be bound as
aforesaid, the Partner Assignee shall have the right to become a substitute
Partner upon payment to the Partnership of all costs and expenses of reviewing
the instrument of assignment, if appropriate, and, if required by law, an
amendment to the Certificate to reflect such substitution. In such event, if and
as required by law, the Partners shall prepare or cause to be prepared an
amendment to the Certificate to be signed by the Partners and, to the extent
required, by the Partner Assignee. The Partners shall attend to the due
execution and filing of an amendment to the Certificate, if such amendment is
required. Unless named in this Agreement, or unless admitted to the Partnership
as provided in this Agreement, no Person shall be considered a Partner, and the
Partnership, each Partner and any other Persons having business with the
Partnership need deal only with Partners so named or so admitted and shall not
be required to deal with any other Person by reason of an assignment or pledge
by a Partner (or realization of a pledge) or by reason of the death of a
Partner. In the absence of the substitution of a Partner for a deceased Partner
as provided in Section 7.1(a) or this Section 7.3, any payment to the executors,
administrators or personal representatives of such deceased Partner shall acquit
the Partnership of all liability with respect to such payment to any other
Persons who may be interested in such payment by reason of the death of such
Partner. A Partner Assignee of an interest in the Partnership who is not
admitted as a
<PAGE>
substitute Partner as provided in this Section 7.3 shall be entitled to receive
the economic benefits of the interest purported to be Transferred but shall not
be considered a Partner for any purposes and shall have none of the rights of a
Partner under this Agreement or under the Act.
7.4 Additional Transfer Restrictions.
7.4.1 Notwithstanding any provision of this Agreement to the contrary,
and subject to the limitations in Sections 7.1 through 7.3, a Partner's
ability to Transfer all or any portion of its Partnership interest, or to
permit the Transfer of ownership interests in such Partner relating
specifically or generally to such Partner's interest in the Partnership,
shall be subject to the following additional restrictions:
7.4.1.1 No Transfer of all or any portion of such interest shall
be effective unless (i) such Transfer complies with the Transfer
restrictions in all agreements to which the Partnership or such
Partner is a party, and (ii) such interest is registered under the
Securities Act and any applicable state securities laws, or an
exemption from registration is available, and, for any direct Transfer
of an interest in the Partnership, the Partnership shall have received
an opinion of counsel, Approved by the other General Partner, to such
effect (unless the requirement that the Partnership receive such legal
opinion is waived by the other Partner);
7.4.1.2 No Partner shall be permitted to Transfer any portion of
its Partnership interest or take any other action which would cause
the Partnership to be (i) treated as a "publicly traded partnership"
within the meaning of Code Section 7704 or (ii) classified as a
corporation (or as an association taxable as a corporation) within the
meaning of Code Section 7701(a);
7.4.1.3 Unless arrangements concerning withholding are Approved
by the General Partners not making a Transfer (if such withholding is
required of the Partnership), no Partner shall be permitted to
Transfer all or any portion of its interest in the Partnership to any
Person, unless such Person is a United States Person as defined in
Code Section 7701(a)(30) and is not subject to withholding of any
federal tax; and
7.4.1.4 No Partner shall be permitted to Transfer all or any
portion of its Partnership interest if such Transfer will (i) cause
the assets of the Partnership to be deemed to be "plan assets" under
ERISA or its accompanying regulations or the Code or (ii) result in
any "prohibited transaction" under ERISA or its accompanying
regulations affecting the Partnership.
7.4.2 Any purported transfer or any other action taken in violation of
this Section 7.4 shall be void ab initio.
7.5 Transfer Indemnification and Contribution Provisions.
<PAGE>
Each Partner shall indemnify, defend and hold the Partnership and the other
Partner, and the shareholders, partners, employees, agents, members and
Affiliates thereof, harmless from any Liabilities in any way arising from the
failure of a Transfer of any interest in the Partnership (including any Transfer
of an interest in any partners, members or shareholders of the indemnifying
Partner, or the partners, members or shareholders therein, and regardless of
whether occurring before or after the date of this Agreement) to comply with all
applicable federal and state securities laws, including all registration or
qualification requirements and anti-fraud requirements, or the impact of such
Transfer upon compliance of the Partnership and its Partners with those
securities laws in connection with any previous Transfer of an interest in the
Partnership. Should the preceding indemnity be unenforceable to any extent,
then, to such extent the Partner otherwise required to so indemnify the
Partnership and the other Partner shall be obligated to contribute to any loss,
liability, cost or expense resulting from the actions, omissions or events set
forth in the above indemnification to the extent of its responsibility therefor,
as determined by the trier of fact.
7.6 Basis for Restrictions and Remedies. The Partners acknowledge that the
relationship of each Partner to the other Partners is a personal relationship
and that the restrictions on the power of each Partner to withdraw or Transfer
its interest in the Partnership and permit the Transfer of ownership interests
in such Partner (i) are necessary to preserve such personal relationship and
safeguard the investment of the other Partners in the Partnership and, in the
case of Transfer restrictions under current law, to help preserve the
Partnership's status as a partnership for tax purposes, (ii) were a material
inducement to the other Partner entering into this Agreement, and (iii) shall be
enforceable notwithstanding the Bankruptcy of any Partner or any applicable
prohibition against restraints on alienation.
7.7 Representations, Warranties and Covenants.
Each Partner hereby represents and warrants to each of the other Partners
as follows:
7.7.1 Such Partner, if not a natural Person, is duly formed and
validly existing under the laws of the jurisdiction of its organization
with full power and authority to enter into this Agreement and to conduct
its business to the extent contemplated in this Agreement;
7.7.2 This Agreement has been duly authorized, executed and delivered
by such Partner and constitutes the valid and legally binding agreement of
such Partner, enforceable in accordance with its terms against such
Partner, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium and other similar laws relating to creditors' rights
generally, by general equitable principles and by any implied covenant of
good faith and fair dealing;
7.7.3 The execution and delivery of this Agreement by such Partner and
the performance of its duties and obligations hereunder do not result in a
breach of any of the terms, conditions or provisions of, or constitute a
default under, any indenture,
<PAGE>
mortgage, deed of trust, credit agreement, note or other evidence of
indebtedness, or any lease or other agreement, or any license, permit,
franchise or certificate to which such Partner is a party or by which it is
bound or to which its properties are subject or require any authorization
or approval under or pursuant to any of the foregoing, or violate any
statute, regulation, law, order, writ, injunction, judgment or decree to
which such Partner is subject;
7.7.4 Such Partner is not in default (nor has any event occurred which
with notice, lapse of time, or both, would constitute a default) in the
performance of any obligation, agreement or condition contained in any
indenture, mortgage, deed of trust, credit agreement, note or other
evidence of indebtedness or any lease or other agreement, or any license,
permit, franchise or certificate, to which it is a party or by which it is
bound or to which any of its properties are subject, nor is it in violation
of any statute, regulation, law, order, writ, injunction, judgment or
decree to which it is subject, in each case if such default or violation
would materially and adversely affect such Partner's ability to carry out
its obligations under this Agreement;
7.7.5 There is no litigation, investigation or other proceeding
pending or, to the knowledge of such Partner, threatened against such
Partner or any of its Affiliates which, if adversely determined, would
materially and adversely affect such Partner's ability to carry out its
obligations under this Agreement, and, to the knowledge of such Partner and
its Affiliates, (i) there is no lawsuit pending against such Partner or its
Affiliates alleging fraud against them and (ii) there is no criminal
investigation or indictment pending against such Partner or its Affiliates;
7.7.6 To the knowledge of such Partner, no consent, approval or
authorization of, or filing, registration or qualification with, any court
or governmental authority on the part of such Partner is required for the
execution and delivery of this Agreement by such Partner and the
performance of its obligations and duties hereunder;
7.7.7 Such Partner is acquiring its interest in the Partnership for
investment purposes and without a view toward its resale or distribution;
7.7.8 Such Partner is sophisticated in real estate transactions, has
been granted access to such financial and other material information
concerning the Partnership, its purchase of the REO Partnerships and the
Properties, the Initial Approved Contracts and all Due Diligence Materials
as it has requested in connection with its investment in the Partnership,
is able, either directly or through its agents and representatives, to
evaluate such information and any Due Diligence Materials provided or made
available to it from time to time hereunder, and is able to bear the
financial risk of loss presented by an investment in the Partnership (which
includes the risk of loss of such Partner's entire investment),
particularly in light of the fact that the Property is subject to
unpredictable real estate values, and the other risks of owning equity or
debt investments concerning real estate;
<PAGE>
7.7.9 Such Partner is aware that transfers of interests in the
Partnership and within such Partner are not permitted except in the limited
circumstances expressly as provided in Article 7 hereof and that an
investment in the Partnership is a long- term investment, without
liquidity;
7.7.10 Such Partner and its Affiliates are not relying upon any of the
other Partners, nor any of their Affiliates in connection with any of the
matters referred to in this Agreement, including any projections,
information, due diligence, representations, statements or other matters
concerning the Partnership, the REO Partnerships, the Properties or
otherwise;
7.7.11 None of the Partner's agents or representatives has made any
binding representations, warranties, projections or assurances to such
Partner with respect to the Partnership, the REO Partnerships and the
Properties, the performance of the Partnership and the Properties, the
safety or the risks involved and/or the tax or economic consequences
thereof;
7.7.12 Such Partner is aware that the other Partner and/or the other
Partner's Affiliates now and in the future will be, and in the past have
been, engaged in businesses which are competitive with that of the
Partnership, the REO Partnerships and/or the Property, and that, no Partner
or its Affiliates is required to bring any Properties opportunities to the
attention of the Partnership, the REO Partnerships or any Partner (or their
Affiliates) for investment;
7.7.13 Such Partner understands that the federal, state and local tax
liability of such Partner and its Affiliates with respect to the taxable
income and gain allocated to such Partner and its Affiliates hereunder for
any year may exceed the cash distributions from the Partnership to such
Partner and its Affiliates, and such Partner and its Affiliates may have to
look to sources other than distributions from the Partnership to pay such
tax;
7.7.14 Except as specifically provided in this Section 7.7, such
Partner is not relying upon any representation or warranty of any other
Partner, the Partnership or any of their respective Affiliates, express or
implied, oral or written;
7.7.15 No Partner is required to cause the controlling persons of such
Partner to devote any specific portion of their time to Partnership
business other than as necessary to fulfill such Partner's obligations
under this Agreement, and such controlling persons are expected to spend
substantial amounts of their time on activities that are unrelated to the
Partnership; and
7.7.16 Such Partner understands that the Partnership and its Partners
are relying on the accuracy of the representations set forth in this
Section 7.7 in entering into this Agreement without requiring that the
interests in the Partnership be registered under federal or state
securities laws.
<PAGE>
ARTICLE 8
TERM, DISSOLUTION AND TERMINATION
8.1 Events of Dissolution. The Partnership shall continue until December
31, 2025, or such later date as is Approved by the General Partners; provided,
however, that dissolution and liquidation shall occur prior to that date upon
the occurrence of any one of the following events:
8.1.1 An election to dissolve the Partnership being made in writing by
the Approval of the General Partners;
8.1.2 The sale for cash, exchange or other disposition of all or
substantially all of the assets of the Partnership and the receipt of the
proceeds of such sale; or
8.1.3 The Bankruptcy or dissolution (without reconstitution within
sixty (60) days thereafter) of the Blackstone General Partner and the
Managing General Partner.
8.2 Limitation on Dissolution. Until the dissolution of the Partnership
otherwise occurs, the General Partners shall not voluntarily retire, resign or
withdraw from the Partnership, take any step voluntarily to dissolve itself or
voluntarily cause a dissolution of the Partnership, except as provided in
Section 8.1.
8.3 Liquidation and Winding Up.
8.3.1 If the Partnership is dissolved for any reason , the Blackstone
General Partner (the "Liquidator"), shall commence to wind up the affairs
of the Partnership and to liquidate and sell or otherwise dispose of and
the Properties and any other asset of the Partnership (unless the
distribution of any Partnership asset or interests therein in-kind to the
Partners is Approved by the General Partners) in an orderly manner as
Approved by the General Partners as soon as is practicable thereafter. A
third-party liquidator may be appointed if Approved by the General
Partners. Any Liquidator other than the Blackstone General Partner shall
have sufficient business expertise and competence to conduct the winding up
and termination of the business of the Partnership as it has theretofore
been conducted or (subject to the limitations hereinafter set forth) which
the Partnership may thereafter enter into. No Liquidator who is a Partner
or an Affiliate of a Partner shall be paid any compensation or fee for
conducting the liquidation of the Partnership.
8.3.2 The Liquidator shall proceed with such liquidation in as
expeditious a manner as is reasonably practicable. The holders of interests
in the Partnership shall continue to share income and losses during the
period of liquidation in accordance with Article 4.
<PAGE>
8.3.3 If a Partner or an Affiliate of a Partner desires to purchase
any of the Partnership's remaining assets, the price, terms and conditions
of such purchase shall be subject to the Approval of the General Partners.
8.3.4 Except as expressly provided in this Article 8, any Liquidator
which is not the Blackstone General Partner shall have and may exercise all
of the powers conferred upon the Blackstone General Partner under the terms
of this Agreement (but subject to all of the applicable limitations,
contractual and otherwise, upon the exercise of such powers), to the extent
necessary or desirable in the good faith judgment of the Liquidator to
carry out the duties and functions of the Liquidator hereunder for and
during the Liquidation Period.
8.3.5 If (i) the Partnership is dissolved for any reason (ii) the
General Partners have become Bankrupt or been dissolved, and (iii) within
ninety (90) days following the date of dissolution a Liquidator or
successor Liquidator has not been appointed by remaining Partners pursuant
to Section 8.3.1, any interested party shall have the right to seek
judicial supervision of the winding up of the Partnership pursuant to the
Act.
8.3.6 After making payment or provision for payment of all debts and
liabilities of the Partnership and all expenses of liquidation, the
Liquidator may establish, for a period not to exceed eighteen (18) months
after the date the liquidation is complete, such cash reserves as the
General Partners may Approve to be necessary for any contingent or
unforeseen liabilities or obligations of the Partnership.
8.4 Distribution Upon Dissolution and Capital Account Adjustments. Upon
dissolution of the Partnership without reconstitution as permitted by this
Article 8, the Partnership's assets shall be sold or otherwise disposed of to
third parties as directed by the Liquidator (unless the Partners Approve a
distribution of any Partnership asset or interests therein in-kind to the
Partners), and, after paying or providing for liabilities owing to creditors
(including Partners) and the establishment of such reserves as the Liquidator
reasonably deems necessary for contingent or unforeseen liabilities or
obligations of the Partnership for a period of up to eighteen (18) months after
the liquidation has been completed, the remaining liquidation proceeds (and the
reserves, after the expiration of a period of time deemed reasonable by the
Liquidator for a period of up to eighteen (18) months after the liquidation has
been completed) shall be distributed pursuant to Section 4.2.
8.5 Compliance with Timing Requirements of Treasury Regulations.
Notwithstanding anything in this Article 8 to the contrary, in the event the
Partnership is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), distributions shall be made to the Partners within the
time required by Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the extent
practicable. However, a liquidation occurring as a result of a Tax Termination
shall not require an actual distribution of Partnership assets, but shall
instead be treated as a constructive liquidation and reformation in the manner
provided in Regulations Section 1.708-1(b)(1)(iv), or otherwise as required by
successor Regulations, if any.
<PAGE>
ARTICLE 9
MISCELLANEOUS
9.1 Other Interests. No Partner and no Affiliate of a Partner shall have
any right, by virtue of this Agreement or otherwise, to share or participate in
or to Approve any other investments or activities of any other Partner or the
income or proceeds derived therefrom, no Partner and no Affiliate of any Partner
shall be obligated to offer or to bring
<PAGE>
to the attention of the Partnership or the Partners any property or other
business investment or opportunity, whether or not within the scope of the
Partnership's purposes, and any Partner and any Affiliate of any Partner may at
any time during the term of the Partnership own, invest in, develop or manage,
directly or indirectly, any property or other business investment or
opportunity, whether or not competitive with the Partnership, the Properties or
the Partnership's other assets or otherwise within the scope of the Partnership
purposes. Each of the Partners acknowledges and agrees that each Partner and its
Affiliates have engaged or invested in, are now engaged and investing in and
will in the future be offered, consider, engage and/or invest in other business
or real property ventures of every kind and nature, including the ownership,
acquisition, financing, leasing, operating, management, syndication, brokerage
and development of real property and other investments and oppor- tunities to
make or purchase loans which are competitive with the Properties and the
business of the Partnership, and none of the Partners or their Affiliates shall
have any obligation or responsibility to disclose, account for or offer any of
such real properties, investments or opportunities to the Partnership or any
Partner or their Affiliates, and the Partnership, the Partners and their
Affiliates shall have no rights or interests therein.
9.2 Damages; Certain Cure Rights; Offset. Each Partner shall be liable to
the Partnership and the other Partners for any actual (but not consequential or
incidental) damages arising from any breach hereof. Except as provided in
Sections 2.2.2.1, 3.5.4, 5.5.1, 5.5.3 or 7.4, the liability of any Partner shall
be limited to the extent of such Partner's interest in the Partnership. Upon any
alleged breach or default of this Agreement by any Partner, it shall be a
condition to any action against such Partner that such Partner have received
notice of such alleged breach or default (which may be any notice otherwise
required by this Agreement) and that such Partner shall have failed to cure such
alleged breach or default within thirty (30) days following such notice.
Notwithstanding anything in this Agreement to the contrary, the only cure period
for failure timely to make a Capital Contribution under Article 2 is set forth
in Sections 2.2.1 and 2.2.2.
9.3 No Agency. Except as provided herein, nothing herein contained shall be
construed to constitute any Partner hereof the agent of any other Partner hereof
or to limit in any manner the carrying on of each Partner's respective
businesses or activities.
9.4 Governing Law. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights and
liabilities of the parties hereto shall be determined in accordance with the
provisions of the laws of the State of Delaware as applicable to a limited
liability company formed under the Act. The United States District Court for the
Southern District of New York and the Supreme Court
<PAGE>
for New York County, New York shall be the exclusive appropriate venues to
litigate questions of interpretation under this Agreement or the rights of the
parties hereunder. Each of the parties hereto hereby waives any and all rights
to a trial by jury with respect to any dispute among the Partners or their
Affiliates or among a Partner (or its Affiliates) and the Partnership concerning
this Agreement, the Partnership or the Properties. In any dispute among the
Partners concerning the Partnership or this Agreement, the prevailing Partner
shall be entitled to recover its reasonable attorneys' fees and costs (including
litigation and collection costs) from the non-prevailing Partners.
9.5 Notices. Any notices or solicitations of Approval required or permitted
to be given under the terms of this Agreement shall be in writing and shall be
deemed to have been given when (i) personally delivered with signed delivery
receipt obtained, (ii) when transmitted by facsimile machine, with printed
confirmation of successful transmission to the facsimile number set forth in the
appropriate address listed below being obtained by the sender from the sender's
facsimile machine, or (iii) by a nationally recognized overnight courier
service, fees prepaid, when delivered, in each case addressed as follows:
If to Blackstone or the Limited Partner, to it in care of:
Blackstone Real Estate Advisors II L.P.
345 Park Avenue, 31st Floor
New York, New York 10154
Attn: Stavros Galiotos
Phone: 212-754-7321
Fax: 212-754-8730
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: Glenn D. Kesselhaut, Esq.
Phone: 212-455-7075
Fax: 212-455-2500
If to Insignia, to it in care of:
Mr. James Aston, Mr. Jeffrey Goldberg
and Mr. John Lines
One Insignia Financial Plaza
<PAGE>
Greenville, South Carolina 29601
Phone: (864) 239-1000
Fax: (864) 239-1096
with a copy to:
Akin, Gump, Strauss, Hauer & Feld LLP
399 Park Avenue
New York, New York 10022
Attn: Robert G. Koen, Esq.
Phone: (212) 872-1071
Fax: (212) 872-1002
The time to respond to any notice shall commence to run on the date of delivery
at the appropriate addresses (or attempted delivery if delivery is refused
during normal business hours). A Partner may change the address to which notices
shall be sent to it, or any of its Authorized Representatives, by written notice
to all Partners (said change of address or of Authorized Representatives to be
effective upon receipt by all Partners).
9.6 Pronouns and Plurals. References herein to the singular shall include
the plural and to the plural shall include the singular, and references to the
masculine gender shall include the feminine and neuter genders (and vice versa),
except where the same shall not be appropriate.
9.7 Waiver. No consent or waiver, express or implied, by any Partner to or
of any breach or default by any other Partner in the performance by the other of
its obligations hereunder shall be deemed or construed to be a consent or waiver
to or of any other breach or default by the other in the performance by such
other party of the same or any other obligations of such Partner hereunder.
Failure on the part of any Partner to object to or complain of any act or
failure to act of any other Partner or to declare any other Partner in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such Partner of its rights hereunder.
9.8 Severability. If any provision of this Agreement or the application
thereof to any Person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other Persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
9.9 Titles and Captions. All Article or Section titles or captions
contained in this Agreement are for convenience only and shall not be deemed a
part of the content of this Agreement.
9.10 Agreement in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. In addition, this Agreement may contain
more than
<PAGE>
one counterpart of the signature page and the Agreement may be executed by the
affixing of the signatures of each of the Partners to one or more of such
counterpart signature pages; all of such signature pages shall be read as though
one, and shall have the same force and effect as though all of the signers had
signed a single signature page. A party to this Agreement may execute and
deliver this Agreement by executing a counterpart of the signature pages hereto
and sending a copy thereof to the other parties to this Agreement by facsimile
transmission. Any party who executes and delivers this Agreement by facsimile
transmission shall deliver four (4) manually executed copies of such signature
page to each other party to this Agreement within three (3) Business Days after
such facsimile transmission (but failure to do so shall not affect the validity
of such party's execution and delivery by facsimile transmission). This
Agreement shall not be effective or binding on any party to this Agreement for
any purpose unless and until each party to this Agreement has executed and
delivered a counterpart signature page to this Agreement to the other parties to
this Agreement.
9.11 Binding Agreement. Subject to the restrictions on Transfers set forth
herein, this Agreement shall inure to the benefit of and be binding upon the
undersigned Partners and their respective heirs, executors, legal or personal
representatives, successors and assigns. Whenever in this instrument a reference
to any party or Partner is made, such reference shall be deemed to include a
reference to the heirs, executors, legal or personal representatives, successors
and assigns of such party or Partner.
9.12 Further Assurances. The Partners shall execute and deliver such
further instruments and do such further acts and things as may reasonably be
required to carry out the intent and purposes of this Agreement promptly upon
request from either Partner.
9.13 Waiver of Partition. Unless otherwise specifically provided in this
Agreement (including Article 8), no Partner shall, and each Partner hereby
irrevocably waives the right to, either directly or indirectly, take any action
to require partition or appraisement of the Partnership, the Properties or any
part thereof, and, notwithstanding any provision of applicable law to the
contrary, each Partner hereby irrevocably waives any and all right to maintain
any action for partition or to compel any sale with respect to its interest in
the Partnership or with respect to the assets of the Partnership, including the
Properties, or any part thereof.
9.14 Entire Agreement. This Agreement contains the final and entire
agreement among the parties hereto with respect to the subject matter hereof,
including the Properties, and they shall not be bound by any terms, conditions,
statements or representations, oral or written, with respect thereto that are
not contained herein. This Agreement does not modify any other agreement among
the parties hereto or their Affiliates except to the extent specifically set
forth in this Agreement.
9.15 Amendments. Except as expressly provided in this Agreement, this
Agreement may be modified or amended only upon the Approval of the General
Partners.
<PAGE>
9.16 No Drafting Presumption. In interpreting the provisions of this
Agreement, no presumption shall apply against any Partner that otherwise would
operate against such Partner by reason of such document having been drafted by
such Partner or at the direction of such Partner or an Affiliate of such
Partner.
9.17 No Third-Party Beneficiaries. The provisions of this Agreement are not
intended to be for the benefit of any creditor or other Person (other than the
Partners in their capacities as such) to whom any debts, liabilities or
obligations are owed by (or who otherwise have a claim against or dealings with)
the Partnership or the Partners, and no such creditor or other Person shall
obtain any rights under any of such provisions (whether as a third-party
beneficiary or otherwise) or shall by reason of any such provisions make any
claim in respect to any debt, liability or obligation (or otherwise) including
any debt, liability or obligation with respect to Capital Contributions, against
the Partnership or the Partners. In addition, no deficit balance in any
Partner's Capital Account or in the capital account of any partner or member of
a Partner shall be an asset of the Partnership, and no Partner shall be
obligated to restore any such deficit balance.
[signatures begin on next page]
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed, and is effective for all
purposes, as of the date first set forth above.
PARTNERS:
BLACKSTONE GENERAL PARTNER
BRE/Southwest Partners I L.P., a Delaware limited
partnership
By: BRE/Southwest Partners I L.L.C., its general
partner
By: Stavros Galiotos
- - ---------------------
Name:
Title:
MANAGING GENERAL PARTNER AND LIMITED
PARTNER
NPI-AP MANAGEMENT, L.P., a Delaware
limited partnership
By: NPI Property Management Corporation, its
general partner
By: Jeffrey L. Goldberg
- - -------------------------
Name:
Title:
[Signatures Continue]
<PAGE>
LIMITED PARTNERS
BLACKSTONE REAL ESTATE PARTNERS II L.P.,
a Delaware limited partnership
By: Blackstone Real Estate Associates II L.P., a
Delaware limited partnership, its general
partner
By: Blackstone Real Estate Management
Associates II L.P., its general partner
By: BREA II L.L.C., a Delaware
limited liability company, its
general partner
By: /s/ Stavros Galiotos
- - -------------------------
Name:
Title:
<PAGE>
BLACKSTONE REAL ESTATE PARTNERS II TE.1
L.P., a Delaware limited partnership
By: Blackstone Real Estate Associates II L.P., a
Delaware limited partnership, its general
partner
By: Blackstone Real Estate Management
Associates II L.P., its general partner
By: BREA II L.L.C., a Delaware
limited liability company, its
general partner
By: /s/ Stavros Galiotos
- - ------------------------
Name:
Title:
BLACKSTONE REAL ESTATE PARTNERS II TE.2
L.P., a Delaware limited partnership
By: Blackstone Real Estate Associates II L.P., a
Delaware limited partnership, its general
partner
By: Blackstone Real Estate Management
Associates II L.P., its general partner
By: BREA II L.L.C., a Delaware
limited liability company, its
general partner
By: /s/ Stavros Galiotos
- - -------------------------
Name:
Title:
[signatures continue]
<PAGE>
BLACKSTONE REAL ESTATE HOLDINGS II L.P.,
a Delaware limited partnership
By: Blackstone Real Estate Management
Associates II L.P., its general partner
By: BREA II L.L.C., a Delaware
limited liability company, its
general partner
By: /s/ Stavros Galiotos
- - -------------------------
Name:
Title:
[signatures conclude]
EXHIBIT 11 - Statement Re: Computation of Earnings Per Share
For the Year Ended
December 31,
1996 1995 1994
Primary
Average common shares outstanding 27,847 21,326 20,038
Net effect of dilutive stock options and warrants
based on the treasury stock method using
average market price 3,714 1,355 518
Total 31,561 22,681 20,556
Net income before extraordinary item $ 9,266 $ 6,258 $ 7,261
Less preferred dividends 199 1,245 --
Adjusted net income before extraordinary item $ 9,067 $ 5,013 $ 7,261
Net income $ 8,564 $ 5,806 $ 7,261
Less preferred dividends 199 1,245 --
Adjusted net income $ 8,365 $ 4,561 $ 7,261
Per Share Amounts:
Net income before extraordinary item $0.29 $.22 $.35
Net income $0.27 $.20 $.35
Fully Diluted
Average common shares outstanding 27,847 21,326 20,038
Net effect of dilutive stock
options and warrants based on the
treasury stock method using the greater
of the average market price or the
ending market price 3,914 1,738 546
Convertible securities as if
converted at beginning of year 654 --(1) --(1)
Total 32,415 23,064 20,584
Net income before extraordinary item $ 9,266 $ 6,258 $ 7,261
Less preferred dividends -- 1,245 --
Add 7 1/2% convertible notes payable
interest, net of Federal income tax effect 152 --(1) --(1)
Adjusted net income before extraordinary item $ 9,418 $ 5,013 $ 7,261
Net income $ 8,564 $ 5,806 $ 7,261
Less preferred dividends -- 1,245 --
Add 7 1/2% convertible notes payable interest,
net of Federal income tax effect 152 --(1) --(1)
Adjusted net income $ 8,716 $ 4,561 $ 7,261
Per Share Amounts:
Net income per share before
extraordinary item $0.29 $.22 $.35
Net income $0.27 $.20 $.35
(1) Conversion of the convertible securities is not assumed in the computation
because its effect is anti-dilutive.
INSIGNIA FINANCIAL GROUP, INC.
Subsidiary List
I. DIRECT SUBSIDIARIES
Entity
1999 Broadway Claims, Inc.
1999 Denver Claims, Inc.
AmReal Corporation
AmReal Realty, Inc.
Beattie Place, L.L.C.
Compleat Resource Group, Inc.
Coventry Properties, Inc.
DGP Acquisition, L.L.C.
DalCap Management, Inc.
Deforest Ventures II, L. P.
Denver Broadway, Inc.
ESG of California, Inc.
ESG of Connecticut
ESG of Florida
ESG of Pennsylvania
ESG of Texas
ESG of Washington, D. C.
FMG Acquisition I, L.L.C.
First Atlantic Management Corporation
First Piedmont Mortgage Company, Inc.
First Resource Realty, Inc.
Fox Assignor, Inc.
GP Services II, Inc.
GP Services X, Inc.
GP Services VII, Inc.
GP Services, Inc.
IB Holding, Inc.
ICIG Airport Technology, L.L.C.
ICIG 101 Marietta, L.L.C.
ICIG Mockingbird, L.L.C.
IFGP Corporation
IFG-SCN Corporation
IHMG of Alabama, Inc.
IMH, Inc.
IPCG, Inc.
IPGP, Inc.
ISPMC, Inc.
InCap Management, Inc.
Insignia Allegiance Management, Inc.
Insignia/Arrow, Inc.
Insignia Broadway, Inc.
Insignia CCP III Acquisition, L.L.C.
Insignia CCP III Holding, Inc.
Insignia CCP IV Acquisition, L.L.C.
Insignia CCP IV Holding, Inc.
Insignia Capital Advisors, Inc.
Insignia Capital Corporation
(continued on next page)
<PAGE>
(continued from prior page)
Insignia Financial Group, Inc. Subsidiaries
I. Direct Subsidiaries (continued)
Entity
Insignia Commercial Group, Inc.
Insignia Commercial Group of Alabama, Inc.
Insignia Commercial Group of California, Inc.
Insignia Commercial Group of Texas, Inc.
Insignia Commercial Group West, Inc.
Insignia Commercial Investments Group, Inc.
Insignia Construction Management Services - New York, Inc.
Insignia-Duddleston Management, Inc.
Insignia/Edward S. Gordon Co., Inc.
Insignia Financing I
Insignia-Gross Management, Inc.
Insignia Hospitality Management Group, Inc.
Insignia Properties, L. P.
Insignia Properties Trust
Insignia Residential Corporation
Insignia Residential and Commercial Groups of Colorado, Inc.
Insignia Residential Group, Inc.
Insignia Residential Group, L.P.
Insignia Residential Group of Alabama, Inc.
Insignia Residential Group of California, Inc.
Insignia Residential Group of Texas, Inc.
Insignia Retail Group, Inc.
Insignia Rooney Management, Inc.
Insignia Transport, Inc.
Kennedy Boulevard I, Inc.
Kennedy Boulevard II, Inc.
Kennedy Boulevard III, Inc.
Kreisel Company, Inc.
Maine Maintenance Corporation
Market Ventures, L.L.C.
MAP VII Acquisition Corporation
MAQ/Lifton Acquisition Corp.
Metropolitan Acquisition VII, L.L.C.
Mockingbird Associates, L. P.
NPI-AP Management, L. P.
NPI-CL Management, L. P.
NPI Capital Corporation
NPI Equity Investments II, Inc.
NPI Property Management Corporation
NPI Realty Advisors, Inc.
NPI Realty Management Corp.
National Property Investors, Inc.
O'Donnell Property Services, Inc.
Property Consulting Services, Inc.
RJN Corporation
RealMark, Inc.
Residents Direct Access Association, Inc.
Riverside Drive, L.L.C.
S.I.A., Inc.
SP I Acquisition, L.L.C.
(continued on next page)
<PAGE>
(continued from prior page)
Insignia Financial Group, Inc. Subsidiaries
I. Direct Subsidiaries (continued)
Entity
SP II Acquisition, L.L.C.
SP III Acquisition, L.L.C.
SP IV Acquisition, L.L.C.
SP V Acquisition, L.L.C.
SP VI Acquisition, L.L.C.
Security Management Inc.
USS Depositary, Inc.
II. ENTITIES OWNED BY INSIGNIA PROPERTIES TRUST
Entity
ConCap Equities, Inc.
ConCap Holdings, Inc.
Davidson Growth Plus GP Corporation
Fox Capital Management Corporation
NPI Equity Investments II, Inc.
Shelter Realty Corporation
Shelter Realty II Corporation
Shelter Realty III Corporation
Shelter Realty IV Corporation
Shelter Realty V Corporation
Shelter Realty VI Corporation
Shelter Realty VII Corporation
U.S. Realty I Corporation
III. GENERAL PARTNER ENTITIES - NPI PORTFOLIO
Entity
Apartment CCG 17, Inc.
Apartment LDG 17, Inc.
Brampton Corp.
CPF 16 Landings, Inc.
CPF 16 Woods of Inverness
CPF 19 Misty Woods, Inc.
CPF XIV/St. Charleston, Inc.
CPF XIV/Torrey Pines, Inc.
CPF XIV/Sun river, Inc.
CPF XV/Lakeside Place, Inc.
CPGF 22 Cooper's Pointe Inc.
CPGF 22 Copper Mill, Inc.
CPGF 22 Four Winds, Inc.
CPGF 22 Hampton Green s, Inc.
CPGF 22 Stoney Creek, Inc.
CPGF 22 Plantation Creek, Inc.
CPGF 22 Wood Creek, Inc.
Century SGP, Inc.
Century 23 Sunnymead, Inc.
Century Park West, Inc.
Century Stoney Greens, Inc.
Century Summerhill, Inc.
(continued on next page)
<PAGE>
(continued from prior page)
Insignia Financial Group, Inc. Subsidiaries
III. GENERAL PARTNER AFFILIATES - NPI PORTFOLIO (continued)
Entity
Creekside Industrial Associates, Inc.
Fox Partners
Fox Partners II
Fox Partners III
Fox Partners IV
Fox Partners V
Fox Partners VI
Fox Partners VIII
Fox Partners IX
Fox Realty Investors
Lifton/MAQ S. E. Investments II, Inc.
Montgomery Realty Company - 80
Montgomery Realty Company - 83
Montgomery Realty Company - 84
Montgomery Realty Company - 85
NPI III Pinetree, Inc.
Woods Century 19, Inc.
IV. GENERAL PARTNER AFFILIATES - CONCAP PORTFOLIO
Entity
Aspen Ridge Properties, Inc.
CCP/III Mountain Plaza Properties, Inc.
Center Crown Phoenix, Inc.
Colony of Springdale Properties, Inc.
ConCap CCGF Properties, Inc.
ConCap CCP/I Properties, Inc.
ConCap CCP/II Properties, Inc.
ConCap CCP/III Properties, Inc.
ConCap CCP/IV Apartment Properties, Inc.
ConCap CCP/IV Properties, Inc.
ConCap CCP/IV Citadel Properties, Inc.
ConCap CCP/IV Residential, Inc.
ConCap CCP/IV River's Edge Properties, Inc.
ConCap CCP/IV Stratford Place Properties, Inc.
ConCap CCP/V Properties, Inc.
ConCap CCP/VII Properties, Inc.
ConCap CCP/VII Park Place Properties, Inc.
ConCap IP/4 Properties I, Inc.
ConCap IP/4 Properties II, Inc.
ConCap IP/4 Properties III, Inc.
ConCap JCIP Properties, Inc.
ConCap MBRF Properties, Inc.
Johnstown/Consolidated Depositary Corporation
Johnstown/Consolidated Depositary Corporation/2
Multi-Benefit 87-1 Depositary Corporation
PRA, Inc.
Philly Associates, Inc.
Ridgmar Square, Inc.
Sturbridge Apartments, Inc.
Westwood Apartments, Inc.
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in (1) the Registration Statement
(Form S-8 No. 33- 84700) pertaining to the registration of 300,000 shares (prior
to giving effect to the two-for-one stock split) of Class A Common Stock in the
Insignia Financial Group, Inc. 401-K Plan, (2) the Registration Statement (Form
S-8 No. 33-82414) pertaining to the registration of an additional 1,000,000
shares (prior to giving effect to the two-for-one stock split) of Class A Common
Stock under Insignia's 1992 Stock Incentive Plan, (3) the Registration Statement
(Form S-8 No. 33- 79490) pertaining to the registration of 575,000 shares (prior
to giving effect to the two-for-one stock split) of Class A Common Stock, (4)
the Registration Statement (Form S-8 No. 33-55278) pertaining to the
registration of an additional 333,333 shares (prior to giving effect to the
two-for- one stock split) of Class A Common Stock under Insignia's 1992 Stock
Incentive Plan, (5) the Registration Statement (Form S-8 No. 333-07155)
pertaining to the registration of options to purchase 1,482,879 shares of Class
A Common Stock and the shares underlying such options pursuant to Insignia's
Non-Qualified Stock Option Agreements, (6) the Registration Statement (Form S-8
No. 333-09449) pertaining to the registration of 400,000 shares of Class A
Common Stock under Insignia's 1995 Non-Employee Director Stock Option Plan, (7)
the Registration Statement (Form S-8 No. 333-10685) pertaining to the
registration of an additional 2,000,000 shares of Class A Common Stock under
Insignia's 1992 Stock Incentive Plan, (8) the Registration Statement (Form S-8
No. 333-17791) pertaining to the registration of 728,000 shares of Class A
Common Stock and (9) the Registration Statement (Form S-3 Nos. 333-17595 and
333-17595- 01) and related prospectus of Insignia Financial Group, Inc. and
Insignia Financing I for the registration of 2,990,000 Convertible Preferred
Securities of Insignia Financing I, 7,941,338 of Class A Common Stock of
Insignia Financial Group, Inc. and certain other securities (including shares of
Class A Common Stock) of our report dated February 14, 1997 with respect to the
consolidated financial statements of Insignia Financial Group, Inc. included in
the Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Greenville, South Carolina
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Insignia Financial Group, Inc. December 31, 1996 Form 10-K and is
qualified in its entirety by reference to such 10-K filing.
</LEGEND>
<CIK> 0000870480
<NAME> Insignia Financial Group, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 54,614
<SECURITIES> 0
<RECEIVABLES> 46,040
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 492,402
<CURRENT-LIABILITIES> 0
<BONDS> 69,140
0
0
<COMMON> 289
<OTHER-SE> 217,616
<TOTAL-LIABILITY-AND-EQUITY> 492,402
<SALES> 0
<TOTAL-REVENUES> 227,074
<CGS> 0
<TOTAL-COSTS> 164,830
<OTHER-EXPENSES> 34,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,730
<INCOME-PRETAX> 14,946
<INCOME-TAX> 5,680
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (702)
<CHANGES> 0
<NET-INCOME> 8,564
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
